CH. Karnchang

Q4 2012 results were as expected

CH. Karnchang Plc (CK)

Earnings in line with estimate

CK reported a 4Q12 net profit of Bt253m, up 205% QoQ and a turnaround from the loss of Bt289m posted for 4Q11. Excluding a before-tax gain of Bt21.5m from divesting a 30percent stake in Chiang Rai Solar and a before-tax gain of Bt233m from selling a 46% holding in Bangpa-In Cogeneration, core profit would be Bt62m, up 17% QoQ.

Results highlights

The top-line jumped by 152% YoY and 28% QoQ to Bt6.9bn, driven by a bigger backlog on-hand. At YE12, CK had a backlog of around Bt120bn, triple the value of the backlog at YE11. Gross margin was 10.2% in 4Q12, up slightly from 9.8% in 3Q12.

The SG&A/sales ratio declined to only 5.5percent from 6.9% in 3Q12 and 17.7% in 4Q11, thanks to effective cost controls and the achievement of economies-of-scale following a strong jump in revenue.

Net gearing was 2.59x at YE12, down slightly from 2.68x at end-Sept and 2.7x at YE11. Net gearing should soon fall below 2.0x with the sale of an 11percent stake in TTW.

Outlook

1Q13 earnings should be very strong. Apart from improving construction income, CK is expected to book a net gain of around Bt1.6bn from selling an 11percent stake in TTW. In addition, we see many positive catalysts lining up for the firm, such as the listing of CK Power and tenders for water management projects.

What's changed?

We have upgraded our FY13-14 core profit forecasts by 91% and 24%, respectively, as our previous assumptions for SG&A expenses appear to have been too high. Our YE13 target price rises to Bt32.25 from Bt30.

Recommendation

Our BUY rating stands. We believe CK's earnings super-cycle has just kicked off and that it should last for at least the next couple of years, supported by a large backlog on-hand and upcoming tenders for mega projects.