Sino-Thai Engineering and Construction
Play
4Q14 profit as expected
Sino-Thai Engineering & Construction Plc (STECON)
Investment thesis
In-line results
STEC reported 4Q14 earnings of Bt371m, down 44% YoY but up 12% QoQ. Excluding the Bt294m gain from a fair value adjustment on investment properties booked in 4Q13, core profit was flat YoY.
Results highlights
Revenue was Bt6bn, flat YoY but up 18% QoQ due to fast construction progress during the dry season. Gross margin was 10.4%, up from 9.8% in 3Q14 following the higher revenue contribution from high-margin projects such as the MRT Blue Line and power plants for Gulf JP.
Outlook
We expect flattish revenue QoQ over the next four quarters, due to the lack of signs of new projects last year. Gross margin will tend to be slimmer from higher contributions from the Parliament project. Management guides for a gross margin of around 9% for FY15, down from 10.2% in FY14. As such, we expect earnings to decline YoY through the year.
What’s changed?
Our forecast and target price remains unchanged.
Recommendation
Apart from its unremarkable short-term earnings outlook, STEC also seems to be lacking short-term catalysts. The next government project bidding will open for the MRT Orange Line, of which STEC has a small chance of winning given that the company has no track record for subway construction. As such, we maintain a HOLD rating on STEC.
