Italian-Thai Development

Italian-Thai Development Plc (ITD) 

Despite the 7.8% share price rebound on the first trading day of the year, the share is down ~30% from the last peak in early December 2014 (Bt8.2) and we see large upside to share price. We value ITD at Bt10.4 based on Bt6.25/share on 12.5x EV/EBITDA, with Bt2.0/share for its overseas projects and Bt2.1 for its potash project. BUY.  

News. Local papers report that Dawei SEZ Development Co Ltd (DSEZ), an SPV registered in Thailand with representative official organizations from both Thailand and Myanmar governments as shareholders, expects to sign the contract for the first phase valued at US$1.329mn or Bt43.80bn in January 2015 (postponed from December 2014). This is expected to take place after the joint high-level committee (JHC) meeting between the Thai and Myanmar governments on 7-9 January.

Dawei SEZ Development Co (DSEZ) invited Japan to bid for the development of Dawei's first phase, but only two companies — Italian-Thai Development Plc (ITD) and Rojana Industrial Park Plc (ROJNA) — have bid, proposing to develop the highway linking Thailand with Dawei plus an industrial estate. The industrial estate is expected to be 34 sq km, larger than previous allotment of 27 sq km. The first phase of Dawei is expected to be a 75 year concession of 50 years plus a 25-year extension. The construction period is eight years, starting in the second half of the first year after contract signing.

ITD’s involvement. ITD expects to have a different shareholding in each project. It has a team working on a feasibility study, which it expects to finalize soon. 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”. Once financing is closed and the project resumes, ITD should be able to get this back plus interest, estimated at Bt1.2 per ITD share.

Latest backlog at Bt250bn, to add North Green Line contract 1 soon. As of November 2014, ITD had the largest outstanding backlog of Bt250bn (ITD itself Bt224bn and Bt26bn from subsidiaries), up from Bt245bn at end-3Q14. This includes concession backlog of Bt150bn (Bt38bn from the Bangladesh elevated expressway and Bt112bn from the Mozambique project). The North Green Line will add Bt14bn and the potash project, expected to start construction in 3Q15, will add revenue of Bt15bn p.a. after commercial operational startup in 2017. Dawei is not included in this figure.

Target price maintained at Bt10.4, BUY.