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Minor contractor stocks recommended for good growth Neutral

Construction materials

Contractor sector has been prosperous and share prices have surged

rapidly. Medium contractor stocks with good fundamental factors

(SYNTEC, PYLON and SEAFCO) still possess lower P/E ratio than

major contractor stocks, making them attractive.

- Time to prosper: private investments resume as normal


Private investments, especially condominiums and shopping centers, have

resumed as normal after the political turmoil receded. SYNTEC, SEAFCO and

PYLON have been signing more contracts since June; their earnings are

expected to grow significantly from 2H14 on. Though the government mega

projects would resume, the auction of most projects has not started yet. It

usually takes at least four to six months before the bid winner can sign the

contract. Consequently, major contractor companies (ITD, CK, STEC and

UNIQ) would benefit from the mega projects from mid-2015 on.

- Medium contractor stocks have lower P/E ratio than major contractor stocks

Prices of contractor stocks have surged significantly due to projection on

good growth in the future. Contractor companies participating in the

government mega projects (ITD, CK, STEC and NWR) have possessed P/E

ratio of over 25x. Medium contractor stocks (SYNTEC, PYLON and SEAFCO)

still possess P/E ratio of only 11-12x. They would benefit more rapidly from

growth in private investments as well as the government investments.

Engineering contractors companies (STPI, TTCL, SRICHA and BJCHI) do not

participate in the government mega projects; 100% of their works are in

private sector. However, their earnings are stable and their dividend yields

are considerably higher than other contractor stocks, making them

favorable contractor stocks.

- Raise good-fundamental medium contractor stocks’ P/E ratio to 14x

We revise up fair values of medium contractor stocks with good

fundamental factors (SYNTEC, PYLON and SEAFCO). We rerate their P/E

ratio from 12x to 14x (in line with the stock market) in order to reflect

rebound. Fair values of SYNTEC, SEAFCO and PYLON are revised up to

B2.60 (from B2.23), B7.04 (from B6.03) and B8.60 (from 6.57),

respectively.


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