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Ch Karnchang

Bulked up by mass transit projects BUY

Ch Karnchang Plc (CK)

- Expect 20-25percent share of public jobs bids of as much as Bt360mn in 2015-2022

- Backlog: Bt104bn from existing MRT projects; strongly placed to get more from Blue Line M&E system

- 2Q14F: core profit expected at Bt312mn

- Recommend BUY, TP at Bt30


- Expected to get 20-25% of new bids. We expect Bt1.8-2.4trn to be budgeted for

infrastructure projects over 2015-2022 under the NCPO's plan. CK is in line to benefit,

getting ~Bt360bn or an average of Bt46bn (between Bt30bn-Bt65bn) per year of public

projects for the next eight years.

Backlog high at Bt104bn. At the end of 1Q14, CK had Bt104bn in backlog. The largest

items are: Bt45bn remaining in Xayaburi (through 2019), Bt20bn on Purple Line

contract 4 (through 2016), Bt6.5bn on Blue Line (through 2016), Bt10bn on Green Line

(through 2017) and Bt20bn on the Si Rat expressway (through 2016). New contracts in

2014 include Bangpa-in Cogeneration (SPP) Phase 2 with a value of Bt4.75bn and Nam

Bak, a hydroelectric power plant in Laos with a value of Bt17bn, adding at least Bt22bn

to CK's backlog in 2014. CK is well positioned to get more work from BMCL's concession

for the M&E system and O&M Services for the Blue Line extension (27km). The value of

this concession is estimated at Bt100bn for BMCL, of which ~Bt25bn could go to CK to

run the M&E system.

- 2Q14F: Revenue estimated at Bt9.2bn, up 7%YoY and 5%QoQ, with a core profit of

Bt312mn, slipping 1% YoY but falling 15%QoQ without first quarter's large dividend of

Bt266mn from TTW; the dividend income from BECL booked in 2Q14 is a much lower

Bt106mn. Net profit growth YoY is distorted by the huge extra gain from divestment in

2Q13. From the beginning of this year through 2016 it will be booking revenue from

Purple Line contract 4 (supply and installation of M&E system), valued at Bt20bn. We

expect this to provide ~Bt6.6bn per year or Bt1.6bn per quarter through completion,

replacing the completed Purple Line contract 1 (in 2Q14). Xayaburi continues to figure

prominently, bringing in Bt9-10bn annually (or Bt2.4bn per quarter). Investments

contributed a net loss in 2Q14 that we estimate at Bt75mn: BMCL a loss of Bt24mn,

Xayaburi a loss of Bt116mn and a Bt50mn gain from CKP. Interest income will shrink by

Bt100mn after BMCL transformed its debt into equity.

- Buy with TP of Bt30, should look beyond 2Q14 earnings. With public investment

once again moving forward, we have returned to sum-of-the-parts to value CK, using

8-year DCF for its contractor business; we allow Bt25 for its own construction revenue,

minus Bt10, which works out to Bt15. We then add valuation for its investments of

Bt15 (Bt5.5/share for TTW, Bt3.5/share for BECL, Bt3.8 for BMCL and Bt2.2 for CKP). If

we use market price for subsidiaries, valuation rises to Bt17.8 from Bt15, widening

upside by almost 10%, brought by a material rise in valuations: in BMCL to Bt6.5 and

CKP to Bt3.1.


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