Uec cuts targets as costs rise

Unimit Engineering (UEC), a regional market leader for steel fabrication, has lowered its net profit target for the year to Bt370 million, from Bt400 million before, mainly due to a 50-per-cent rise in the price of steel.

The revision cuts the company's growth target from 18 per cent to 16 per cent. The company posted a net profit of Bt330 million last year.

UEC president Thailuck Leetavorn said the company has negotiated with its clients to raise contract prices to cope with the higher cost of steel.

Global hot-rolled coil prices increased to US$700 (Bt22,600) per tonne in February, from $465 per tonne in January.

For the first quarter, UEC posted a net profit of Bt55.2 million, down 13 per cent year on year and 2.7 per cent quarter on quarter. Its first quarter-revenue was Bt436 million, up 21.9 per cent year on year, but down 6 per cent quarter on quarter.

Thailuck said the company had a backlog worth a combined Bt2.1 billion, of which about Bt1.5 billion was expected to be realised this year.

"We've tried to export more products and sought to be a subcontractor for large projects won by foreign investors in the country," he said. 

The company's main products are pressure vessels, machinery parts, steel structures, non-pressure vessels, and mechanical installation.

About 60 per cent of UEC's total revenue of Bt1.82 billion last year came from sales of large pressure vessels.

Five securities houses recommended a range of "hold", "neutral" and "buy" for UEC shares, with an average price target of Bt7.82 apiece for this year. UEC closed at Bt5.45 per share last Friday, down 30 satang from the previous day.

KGI Securities (Thailand) said in a research report that the weak result was due to a margin squeeze from labour-cost overruns. The increase in first-quarter revenue year on year to Bt436 million was due to revenue realisation from the company's existing backlog, such as pressure-vessel and machine-parts production.

The securities houses said UEC's gross margin in the first quarter was 21.5 per cent, down 5.1 per cent year on year, due mainly to an increase in labour costs from a delay in project construction.

KGI said that in this quarter, UEC had offshore projects for piping installation and steel structures but that its clients had delayed finalising projects and delivering necessary materials. Therefore, UEC had to bear labour-cost overruns of Bt22.7 million, which dragged down its gross margin.

The brokerage house has trimmed UEC's gross margin from 31 per cent to 25 per cent for this year and to 27 per cent for next year.

"As a result, our 2008-09 earnings projections were revised downwards 30 per cent and 19 per cent to Bt369 million and Bt464 million, respectively," said KGI's research.

KGI is maintaining a rating of "neutral" for UEC shares this year, with a new target price of Bt7.80 apiece, down from Bt9.30 before.