Sino-Thai 2009-2010

Thailand's Sino-Thai Engineering (STEC): Positive earnings outlook remains intact
21 January 2010
Thai News Service

Section: Stocks - STEC is expected to report its best quarterly earnings of last year in 4Q09. Earnings in 2010F should continue to improve as its margin widens while 2011 should be a bumper year for STEC as the company has a good chance of winning several high-margin projects. Given its favourable longterm prospects, Buy rating is reaffirmed.

Normalised profit in 4Q09F should come in at Bt85m, up 32% QoQ but down 8% YoY. Its projected strong performance is mainly due to a further widening of its gross margin from 3.7% in 4Q08 and 4.2% in 3Q09 to an estimated 7.3% following the completion of major low-margin projects. Also a larger portion of revenue in 4Q09F will come from high-margin projects.

STEC's backlog including soon to be signed projects now totals Bt20bn, with the quality having improved considerably. This should be the key earnings driver in 2010F. STEC also has a good chance of winning several high-margin projects e.g. the Pluto LNG Plant phase II, plant fabrication work for the petrochemical and energy industries and other mass transit projects. If this transpires, 2011 should be a very good year for STEC.

Forecasts and target price of Bt8.70 is maintained unchanged. TP is based on a 2010F P/BV of 2.2x (derived from STEC's five-year historical average. Key risks include cost overruns from higher raw material prices, fewer than expected new projects, intense competition, delays in construction of its key projects i.e. the Purple Line, and renewed political instability which could delay public works under the SP2 package.(TISCO Securities: 20 January 2010)