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Italian-Thai Development

Good chance of new contracts here and abroad BUY

Italian-Thai Development Plc (ITD)

Bt1.9bn signed so far this year, adding to the US$4bn (approximately Bt120bn) Mozambique government contract to build and operate a port and rail system from Moatize to Macuse signed in December. Construction is expected to take 4-5 years and ITD has the right to operate it for 30 years beyond that. ITD's backlog has now gone above Bt200bn. Despite the loss of the Bt2trn bill, there will be new public jobs up for bidding and ITD has a good chance to win at least some of these.

Good shot at some public bids opening this year. These include Phase 2 of Suvarnabhumi airport, valued at Bt48bn, in which the terminal will be expanded. We note that ITD was in on the construction of this airport from the beginning. Others expected to come up for grabs are the MRT Green Line (Morchit-Saphanmai-Kukot), with civil work valued at Bt26bn (divided into 4 contracts), and double tracking for SRT, valued at Bt11bn (e-auction bidding around May 2014). Next year bidding will open for double-tracking five SRT routes for a total value of ~Bt105bn.

Cash call. The company announced it will issue a maximum of 1,010mn new shares at par of Bt1. Of these, a maximum of 591mn shares will be offered at rights to current shareholders with a maximum of 419mn shares as private placement. Full take-up of these shares will bring 17% dilution. The plus is that the recapitalization will boost cash flow and give it the liquidity needed to run the big project in Mozambique as well as projects here at home over 2014-2015.

Faces risks, but potential high this year. Political uncertainties in Thailand and the high current debt to equity at 4.57x make ITD look risky. However, we believe ITD has a good chance to sign on the dotted line for several large projects this year, and its job in Mozambique looks to have high potential and contribute substantially to ITD for the long term. The share is trading at a PER of 18x and its P/BV is attractive at a low 1.4x vs. the average of 1.6x. Considering the dilution from recapitalization, we lower our target price to Bt4.5 (17%) from Bt5.5. We still feel the counter deserves a BUY at the new TP of Bt4.5, based on P/BV at 2.0x, fully discounting the 17% dilution.




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