Italian-Thai Development

What’s new? Myanmar and Thailand have confirmed the development of the initial phase of the Dawei deep sea port project. Dawei SEZ Development Co, a joint venture between Myanmar and Thailand, has invited Japan to bid for the development of Dawei's initial phase, but only two companies — Italian-Thai Development Plc (ITD) and Rojana Industrial Park Plc (ROJNA) — have proposed developing the highway linking Thailand with Dawei plus an industrial estate. The first phase is valued at Bt40-50bn and will start up in November 2014. It is now expected to encompass 27 sq km, larger than the earlier 20 sq km (similar size as Map Tha Put). Initially, the IE will focus on light industry.

Good location will save time and transportation cost. Dawei is located in Myanmar, 330 km from Bangkok and will open a new trade route to the Andaman Sea and Indian Ocean, facing India, the Middle East, Africa and Europe. It will allow smooth connections between the west (Andaman Sea) and east (Gulf of Thailand). Beginning with light industry, down the road it can also serve as a site to develop petrochemical and petroleum industries. Both Myanmar and Thailand will benefit in the long run. 

Impact on ITD. ITD has not written off its initial Bt6bn (US$189mn) investment cost in Dawei, but has listed it as a non-current asset under the item “Land lease concession and project under development”. When the project resumes, ITD should be able to get back this money plus interest, estimated at Bt1.2 per ITD share. It is expected to get its money back when the financing is closed, likely from the Japanese government, after which it will restart construction. 

Latest backlog at Bt198bn excluding Dawei. At end-3Q14, ITD has the largest backlog of all Thai contractors at Bt198bn, including Dhaka elevated expressway (Bt37bn value) and the project in Mozambique. It is also in line for substantial backlog from public projects as they come up for bidding, particularly the various colored mass transit lines. 

Buy, TP Bt8.5. We see many share price catalysts as it bids for more projects as they come up as the country’s investment into infrastructure gets into high gear. Progress on its jobs overseas will also act as catalysts. Our target of Bt8.5/share is composed of Bt6.5/share from 12.5x EV/EBITDA, plus Bt2/share from overseas projects. There is also upside of Bt1.2/share if ITD gets paid the Bt6bn it has already sunk into Dawei. Buy.