Sino-Thai Eng & Con
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Needs more projects, but profitability still best BUY
Sino-Thai Eng & Con Plc
3Q14 and 9M14 recap: net profit Bt333mn (EPS Bt0.22), -14%YoY and -17%QoQ,
below our estimate of Bt390mn, but still within its usual range of Bt300-350mn.
Construction and service revenue was Bt5.1bn, down 17%YoY and 2%QoQ with a gross
margin of 9.8%, versus 10.9% in 2Q14 and 8.9% in 3Q13. We estimate net margin at
6.5%, down QoQ as it took funds out to invest in expansion, cutting interest income by
26% to Bt57mn from Bt78mn last quarter. 9M14 net profit was Bt1.1bn, +7.7%YoY and
73% of our 2014 forecast. Total revenue was Bt15.6bn, down 4.3%YoY. STEC continues
to have almost zero debt and negligible interest expenses of Bt16mn in 9M14.
~Bt46bn backlog left. STEC, with the lowest backlog of all big contractors, needs
more projects. As of 3Q14, we estimate its backlog at ~Bt46bn, down from Bt48bn at
end-2Q14. The only new backlog was Bt2.4bn for a bypass road and highway, where
margin is lower than for mega projects like MRT’s and power plants. The company
expects to win one of four contracts for North MRT Green Line that will be awarded in
1Q15, with work starting in March 2015. Bidding for Suwannabhumi Airport Phase II is
expected in August 2015 and it expects to announce new private jobs in late 4Q14.
4Q14 outlook. We expect 4Q14 to be a good quarter for with profit of ~Bt400mn,
with most coming from Blue Line contract 4 (valued at Bt13bn), with two IPPs for Gulf
Electric group and seven SPPs and the LNG Modularization project for STPI winding up.
Other income is mostly interest income on overseas bonds. The completion of Purple
Line contract 2 in 4Q14 will leave a big gap in revenue from large projects 2015.
2015-2016: construction service industry looks very good. After an unexciting
2014, STEC is looking good for 2015-2016. It is expected to win at least one of the four
North Green Line (Morchit-Saphanmai-Koo Kot) contracts, total value of Bt26bn; this
project is under the Mass Transit Authority of Thailand (MRTA). The final auction is
expected in 1Q15, with the intervening time used to draw up the technical
specifications and come up with a price below the MRTA’s base price.
Further MRT projects to move the industry. Projects awaiting cabinet approval are
the Orange (partial underground route from Taling Chan to Minburi), Pink (Khae Rai-
Minburi) and Yellow (Ladprao-Samrong) lines. Bidding for these is expected to open in
2015. These three lines have a total value of Bt230bn.
Maintain BUY with target price of Bt30, based on 2015 PER of 30x, (+2SD). STEC has
the smallest backlog of peers at less than Bt46bn currently – enough to support only
two years of profit. Still, we are comfortable with a Buy as its profitability is the best of
the three and it offers good dividend yield and ROE.
