CH. Karnchang

CH. Karnchang Plc (CK)  

 

Below our estimate

CK reported 4Q15 net loss of Bt182m, versus net profit of Bt417m in 4Q14 and Bt284m in 3Q15. The figure was lower than our estimate of Bt20m due mainly to higher-than-expected SG&A expenses.

Results highlights

Revenue expanded 22% YoY and 4% QoQ to Bt8.7bn, on greater revenue booking from the Xayaburi and MRT Purple Line Package No.4 projects. Gross margin was 8.0% in 4Q15, down slightly from 8.2% in 3Q15.

The SG&A expenses rose 93% YoY to Bt575m, while SG&A/sales ratio increased to 6.3% in 4Q15 from 4.7% in 3Q15 and 4% in 4Q14. The firm has yet to clarify the reason behind the jump in SG&A expenses.

Outlook

If a rise in SG&A expenses in 4Q15 is a one-off event, we expect core earnings in 1Q16 to improve YoY for the first time since 2Q14, thanks to increasing construction income.

What’s changed?

We cut FY16 earnings by 36% to Bt749m to factor in our new assumptions on SG&A and interest expenses. Our YE16 target price was cut to Bt32 from Bt34.

Recommendation

We reiterate our view that FY16 is the best era for contractors. A series of big-ticket biddings are under way. Contractors’ earnings are resuming a strong growth trend. There is no pressure from the cost side, while valuation is attractive. CK is trading on a PBV of 1.9x, in line with its historical average while we believe the stock would be able to trade near its peak level of 2SD above average, or PBV of 2.7x.