Italian-Thai Development

3Q14 net profit is estimated at Bt200mn, up 740%YoY and 297%QoQ. For the past two years, third quarter has been the worst with fourth the best and on that basis we expect net profit of Bt400mn in 4Q14. Gross and net margins should be stable at 9.4% and 1.7% respectively. 9M14 core profit is estimated at Bt298mn, -17%YoY and net at Bt406mn, -11%YoY on a gross and net margin of 9.6% and 1.2% respectively. 

Revenue. Major revenue contributors will continue to be Mae Moh Mining and buildings, the SRT Red Line, and MRT Blue and Purple lines. The Red Line, for which ITD is main contractor, is progressing well and we expect it to contribute good revenue. In 2015, it is expected to start the Bt38bn Dhaka expressway in Bangladesh, which will contribute Bt9.4bn in construction revenue. The Bt37bn potash project in Udon Thani will also begin in 2015. In 2016, the Mozambique project will begin to bring in revenue. 

Potash project. This will provide concession revenue share of ~Bt10bn per year and net margin of at least 10%. ITD plans to list the operator, Asia Pacific Potash Corporation Ltd (APPC), in Singapore or Hong Kong, selling 15% of its 90% holding, which could bring as much as Bt5bn cash. We expect this project to add Bt0.4/share (we estimate IRR of only 12% vs. ITD’s 35%). The project will also add 8% to ITD’s current market value.

Dawei could add Bt1.2/share. ITD did not write off the investment cost in Dawei project of Bt6bn (US$189mn), but put it as a non-current asset under the item “Land lease concession and project under development”. When the project resumes, ITD is expected to be repaid this amount plus interest, which would add Bt1.2/share. The project value for Phase 1 of the Dawei project is put at Bt50bn, some of which will go to ITD. We expect ITD to wait for the financial closing of the project, to be funded at least in part by the Japanese government, before restarting construction.

Latest backlog at Bt198bn excluding Dawei and Potash. At end-3Q14, ITD reported the largest backlog of Thai contractors at Bt198bn; this includes Bangladesh and Mozambique projects but not Dawei in Myanmar and potash in Udon Thani. ITD is also ideally placed to get more jobs from public projects, first of which is expected to be the MRT North Green Line, for which the bid winner will be announced by the end of this year. We expect construction in Bangladesh to get going soon. 

Buy, TP Bt8.5. We see many share price catalysts as projects come up for grabs as local infrastructure investment gets into high gear and well as its overseas jobs (Bangladesh, Mozambique and Dawei). We keep our TP at Bt8.5/share, made up of Bt6.5/share from 12.5x EV/EBITDA, plus Bt2/share from overseas projects. We note upside from Dawei project of Bt1.2/share when ITD gets repaid its Bt6bn already sunk into the project. BUY.