FRIDAY, March 29, 2024
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BJC Heavy Industries

BJC Heavy Industries

High-profile clients in a high margin business BUY

BJC Heavy Industries Plc (BJCHI) 

 
Australia set to provide new backlog. Australia’s energy and petrochemical industry plans to spend more than A$177bn over 2012-2017 and in 2012, BJCHI got its first large A$24.7bn (US$23bn) modularization project from Australia’s major natural gas producer, Australia Pacific LNG Pty Limited (APLNG), spread out over 2011-2015. The overall project is as yet uncompleted, with A$3.7bn or US$3.4bn left to be spent before it starts up in mid-2015. BJCHI expects new portions to come up for bidding and believes it is positioned to win its bids. Australia’s buildup of its industry could supply work for BJCHI over many years. BJCHI has also taken 30% in AusCom Energy at a cost of Bt22mn, adding customers in the mining industry. BJCHI expects this investment to give it mining jobs next year. 
Brazil also on the scene. Petrobras owns oil refineries, oil tankers, and is a major distributor of oil products. It is a world leader in development of advanced technology from deep-water and ultra-deep water oil production. BJCHI has signed engineering, procurement and construction service (EPC) subcontracts with Regal Star (Hong Kong) Limited (EPC contractor) for FPSOs P-75 and FPSOs P-77, together valued at US$36.20mn (~Bt1.2bn). This is the first year BJCHI has gotten work from such a high-profile client. BJCHI’s job will be to produce the modular/floating production storage and offloading units used by Brazil’s oil and gas industry over a period of 15 months. Its backlog from Petrobras is at Bt4bn and BJCHI expects to get modularization work for Petrobras valued at over Bt5.6bn in 2015. We expect this client to lead BJCHI to report high construction revenue growth in 2014-2018. Although gross margin will be narrower than it was for APLNG, where it was project owner, the upside is that this could be a long-term relationship bringing large and sustainable work.
2015 backlog poised to grow to Bt6.9bn from Bt5.0bn in 2014. Completion of a large project for APLNG pushed BJCHI’s net profit up to its highest ever at Bt400mn in 3Q13; profit then fell in 4Q13 to Bt254mn and to Bt169mn in 1Q14. It now has a new client, Petrobras, which is supplying steadily more contracts after beginning with Bt1.2bn in 4Q13, to reach Bt3.9bn in 3Q14. It expects to achieve backlog of Bt6.9bn in 2015 (Bt5.6bn from Petrobras, the rest from Laing O’ Rourke and others). This does not include more jobs that will come from APLNG before it starts up in mid-2015. BJCHI expects APLNG to open bidding for a new phase of LNG investment in 2015.
Valuation and recommendation. BJCHI holds a solid financial position with almost no debt and no financing cost, debt to equity ratio of only 0.1x, and 2015 PER at ~10x. It also offers a good dividend yield of 5-6% p.a. with ROE of 25%. We value BJCHI at industrial 2014 PER of 15.0x (average PER +0.5x S.D), which gives a target price of Bt60/share. We initiate coverage with a BUY.     
 
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