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Ch Karnchang

Enough work to tide it over BUY

Ch Karnchang Plc

1Q14F and 2014F. We expect revenue of at least Bt8bn with core profit of Bt300-

Bt400mn in 1Q14F, with construction revenue for the whole year at Bt34bn, +4.13%

YoY. Stripping out the Bt6.8bn extra gain in 2013 from divestment gives a 2014 core

profit of Bt1.4bn, +75%YoY from Bt831mn in 2013. Still supplying the bulk of its

revenues is Xayaburi (~Bt10mn per year), the Purple Line contract 4 (Bt5-6bn annually,

Si-Rat (Sector B+) expressway (Bt5bn) and Green Line contracts 1 and 2 (Bt3.7bn). We

forecast gross margin of 10.3% in 2014, a slip from 10.8% in 2013. Net margin is

expected to improve sharply to 4.2% in 2014 from 2.5% in 2013.

Backlog Bt112bn at end-2013, enough for 3.5 years. This is made up of Bt48bn

remaining from Xayaburi, to come in over six years, plus Bt20bn from the Purple Line.

It still has a total of Bt20bn from the Si Rat expressway, but subcontracted Bt8bn to

STEC, leaving it with Bt12bn. New contracts this year will include Bangpa-in

Cogeneration (SPP) Phase 2 (Bt4.75bn) and Nam Bak, a hydroelectric power plant in

Laos (Bt17bn). Backlog should thus rise by at least Bt22bn in 2014.

Profit from BMCL after 2016. CK now has 30.15% in BMCL, down from 33.95%, and

will continue to book losses (Bt261mn in 2014, Bt312mn in 2015) until 2016, after

which BMCL will at last contribute a profit of Bt595mn in 2017 and Bt810mn in 2018.

Outlook dimmed by loss of Bt2trn bill but jobs will still open. There will be at

least Bt85bn public projects up for bidding in 2014, beginning with Green Line (Mor

Chit-Ku Kod) extension, with civil work valued at Bt26bn. Bidding is expected to open

on April 10, with winners announced in May to June. The State Railway of Thailand

(SRT) plans to open bidding via E-action (immediate results) for dual-tracking of the

Chachoengsao-Klong 19-Kaeng Khoi route, valued at Bt10bn, with construction to

start around May 2014. Phase 2 of Suvarnabhumi Airport, civil work valued at Bt48bn,

will open for bidding in April, with winning bid announced in August 2014. We also

expect 2015 public jobs of Bt105-125bn from five more SRT double-tracking routes.

Buy with TP of Bt22. We allow Bt22 for its own construction revenue, minus Bt10 for

net debt, plus Bt12.5 for subsidiaries (TTW at Bt5.5, BMCL at Bt1.2, BECL at Bt3.5 and

CKP at Bt2.2). From 2016, earnings will be given a boost by BMCL. CK paid a stock

dividend on 2H13 at a ratio of 40:1, bringing 2.5% dilution in May 2014 (increase of

41mn shares to 1,694mn total). The impact is small and we maintain BUY.


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