BJC Heavy Industries
Bottom-fishing for high-yield, low PER play BUY
BJC Heavy Industries Plc (BJCHI)
The recent plunge in oil prices may hurt BJCHI’s clients in the oil, gas and coal industries and ripple out to affect BJCHI. At the same time, we note that its clients are largely in the unconventional fuel business, which is still growing rapidly. Preferring to stay conservative, we have lowered our valuation to 13.3x 2015 PER from 15x, using the average of Thai peers, which cuts target price to Bt53. However, it is trading at only 7.8x 2015 PER with 6% dividend yield, giving a very attractive upside of nearly 70%. We still BUY.
4Q14 to beat 3Q14. We expect it to do even better in 4Q14 than in 3Q14 with net profit of Bt347mn, +36% QoQ and +32%YoY on revenue of Bt1.4bn. Bottoming in 1H14, we expect BJCHI’s earnings will perform well QoQ from now on. We note that 3Q14 core profit was Bt309mn but net profit was Bt257mn due to FX loss.
2015 revenue growth of 14.5%. Management intends to achieve 15% revenue growth yearly, which is close to our 2015 forecast growth of 14.5%. We expect 2015 revenue to grow 14.5% YoY to Bt5.08bn from our 2014F revenue forecast of Bt4.43bn.
2015 margins to improve QoQ and YoY. We expect gross margin to improve to 30.8% in 2015 from 2014F in 29% after passing the startup stage for new projects and new clients in 1H14. Net margin is also expected to improve to 25.2% in 2015 from 22.6% in 2014F. We like its new client portfolio after signing with Petrobras while keeping Australia clients APLNG and Laing O’Rourke (LOR). We expect these to provide a flow of new jobs despite the plunge in oil prices that have shadowed the energy industry outlook. Its reputation for high quality work will help it keep clients as they become more cautious about their capex.
Current backlog of Bt4.65bn and Bt3.9bn more coming. BJCHI has three major clients: Brazil’s Petrobras (subcontractor), Australia’s APLNG (direct EPC contractor) and Australia’s Laing O’Rourke (subcontractor). In 2014-2015, BJCHI has secure backlog of Bt4.65bn from these three firms, with a good chance for Bt3.9bn more from Australia clients, notably APLNG, which is adding a new phase to its LNG project.
Ready with pre-assembly and modularization yards. BJCHI has three service yards for pre-assembly and modularization: in Map Tha Put (52,000 sqm) for Petrobras, in Sattahip (25,500 sqm) and in Samaesan (20,800 sqm) for work for existing clients. These are only 35-40km from its headquarters at the Rayong factory. We believe this is one of the keys to BJCHI’s success in keeping its clients.
BUY, though cut target price to Bt53from Bt60. We admit to some concerns about the energy industry but believe global E&P will go on, particularly for unconventional fuels such as LNG and shale gas. BJCHI has a solid financial position with debt to equity ratio of only 0.1x, and 2015 PER at ~8x. It also offers a good ROE at 25% and good dividend yield of 6% p.a. (XD and payment in May). We value BJCHI at Bt53 based on industrial 2015 PER of 13.3x (average industrial PER) instead of PER plus 0.5 S.D. BUY.
