Stock focus :Sino-Thai Engineering
Kim Eng Securities (Thailand) has upgraded its recommendation on Sino-Thai Engineering and Construction shares from "fully valued" to "accumulate", with a fair value of Bt5.85 apiece.
Sino-Thai should deliver construction work worth Bt16 billion to Bt17 billion next year, based on construction timetables.The brokerage has thus revised its revenue estimate for Sino-Thai next year upwards 8 per cent to Bt16.56 billion, thus raising its 2007 earnings forecast 11 per cent to Bt524 million. The gross margins are expected to improve to 4.9 per cent next year, supported by a higher contribution from high-margin power-plant projects. Sino-Thai will focus more on profitability, with more selective bids on projects with reasonable margins. As a result, the company expects to target revenue growth of just 10-15 per cent for the next two years. In the broker's view, this is a good strategy, since it has been proven that aggressive expansion of the backlog and top line without careful consideration of margins will not raise the bottom line. The company has a total backlog worth Bt32.85 billion, with a blended gross margin of 5 per cent. This sizeable backlog will help secure a revenue stream for the next two years. Sino-Thai should also be able to tap the expansion of several petrochemical- and power-plant projects, given its expertise and strong track record in these sectors.
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