Italian-Thai Development
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Happy days ahead BUY
Italian-Thai Development Plc (ITD)
Happy days ahead. ITD Thailand’s largest contractor, is poised to add contracts
arising out of the Bt2.4trn budget to be spent over 2015-2022. These include Red Line
contract #2 under the SRT, double tracking for the SRT, the North Green Line (MRT)
and some flood protection projects. Private projects also look good, with high demand
for condos but a severe shortage of contractors. Other long-term ventures are ready
to go – a 25 year concession for a potash mine in Udon Thani, a 30-year concession for
an elevated expressway in Dhaka and a 40-year concession in Mozambique.
Potential government projects. 1) SRT Red Line contract #2: ITD has the initial
Bt21bn contract with Bt18bn remaining through 2017 and is likely to get 19% or Bt4bn
of the extension work. 2) Dual tracking: total project value is Bt475bn, with bidding for
the Bt11bn first stage before FY2015, with the next bid for Bt105bn. It has the longest
resume for this type of work and we expect it to get the lion’s share. 3) Flood
protection: ITD and partners won the bid for Bt110bn in jobs, Bt53bn of which was
ITD’s portion, not in our backlog. This may be revived with negotiations with the bid
winners early in FY2015 (beginning on October 1, 2014). 4) MRT Green Line (North),
Morchit-KooKot: total value is Bt38bn, bidding is expected to open on September 19.
This has four contracts and ITD is placed to win the two largest of Bt14bn, and Bt6bn.
High demand for qualified skyscraper contractors. ITD is also top of the list for
contracts to build skyscraper superstructure, where margin is higher. ITD has in fact
had to turn down some jobs to avoid overstretching its capacity. The shortage of
qualified contractors gives it bargaining heft.
Potash mine project. ITD invested 90% in Asia Pacific Potash Corporation (APPC) to
run a potash project in Udon Thani (the government holds the other 10%). The EHIA for
this project is being submitted after which a mining license will be requested. There
has been a small delay, but the opportunity is good and we believe the official red tape
will be gotten through quite rapidly. It hopes to start construction in 2015. Total
investment value is US$1.2bn (Bt37bn, debt to equity agreement is 3:1); the project IRR
may have to be revised down to 12% at potash price of US$300-350/ton from almost
35% at potash price at US$1,000/ton. However, ITD will still get the construction
revenue for the 25 years of concession life. ITD plans to list APPC somewhere in Asia.
Bangladesh concession alive, Mozambique being designed. The Bangladesh
government has finally okayed the Dakha elevated expressway, a 30-year concession
with project value of Bt37bn. Construction is hoped to start in October 2014 and supply
revenue of Bt9bn through 2019. The project in Mozambique has begun the design
work, with construction to start in 2016, supplying Bt30bn each year through 2019.
Buy, TP Bt8.5. We see many share price catalysts as projects come up for grabs. We
value its construction business after net debt and concession at home (potash) and
overseas (Dakha and Mozambique but not Dawei) at Bt8.5/share, on PBV+2S.D or 3x BV.
