Sino-Thai Engineering & Construction

Sino-Thai ngineering & Construction Plc (STEC)

3Q13F net profit Bt334mn, +8% YoY, +20% QoQ. 3Q13F revenue is estimated at Bt5.571bn, -3.6% YoY and +20% QoQ, with a gross margin of 10.1% and net margin of 6%. SG&A to sales is estimated at 4.3%. Three quarters of its revenue came from two sources – rapid transit and power plants. Rapid transit contribution was from two MRT lines: 1) Purple Line contract 2, with the MRTA, valued at Bt13bn; 78% completed and STEC expects to close the project in 2014; 2) Blue Line contract 4, with the MRTA, valued at Bt12.4bn, 26% completed, on schedule to finish in 2016. Power plant revenue came from three major projects for Gulf JP - two IPPs (Bt8.7bn and Bt8.5bn) and seven SPPs, valued at Bt7.2bn.
New income in 2014. The major new revenue contributors in 2014 are expected to be construction of the new parliament building, valued at Bt11.45bn (30 months, 2014-2016) and “erection of steel module for STPI” valued at Bt2.54bn. This latter will give a good margin as it does not include raw material cost, with STEC simply providing the manual labor. This will give STEC as much cash as from its large state projects. The project will start in 3Q13 and run to 3Q15. The rest of its jobs have values of below Bt3bn each. It has cut the Bt17bn Red Line contract 1 with the SRT from its backlog. This project was originally a JV with UNIQ, with STEC taking 60% and UNIQ 40%. STEC turned the project over entirely to UNIQ in September 2013; it got revenue of Bt600mn – just the civil engineering – for this project.  
Potential bids in 2014. The MRTA is going ahead with rapid transit to achieve broad coverage of the city with ten lines ultimately covering 468.8km – five times the current 42.25km. Bidding for new lines is expected to open in 2013-2014. First is the Green Line (Mor Chit-Ku Kod), an extension of the current sky train. This was approved by the cabinet in October 2013. We expect it to take about three months to sell the bidding envelopes, then another four to six months before the formal bidding. The other MRT lines coming up are Pink, Orange, and Yellow. It also has a good chance to get the contracts to build more power plants: Gulf Energy Development Co, a past client, was the only winner in the third round of IPP bidding, with combined capacity of 5,000MW, worth ~Bt21.5bn. Expected COD is 2021. Then, bids for 39 more SPPs will open in 2014.
Latest backlog at Bt63bn. Cutting the Bt17bn Red Line contract 1 from backlog gives STEC backlog of Bt63bn in September 2013, -20% from previous reported backlog. We estimate yearend backlog at Bt71bn, -12% from previous forecast at Bt81.8bn. Impact will be an earnings cut of 4% in 2014 and 2% in 2015.
Buy with TP of Bt28. Although STEC has slashed its backlog, we believe it has a good chance of adding more jobs at better margin. Therefore we still recommend BUY with an unchanged TP of Bt28.