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Italian-Thai Development

2Q14F: Growth YoY, QoQ, new jobs ahead in 2H14 BUY

Italian-Thai Development Plc (ITD)

2Q14F net profit Bt159mn, +77%YoY and +2%QoQ on an estimated rise in sales of 8.9% YoY and 2.6% QoQ to Bt11bn. Some of this came from Bt4bn in backlog added this year for eight projects on which construction is only 5-18 months. We believe these projects will add ~Bt500mn per quarter from 2Q14 in 2H14. Gross margin is estimated at 10.1% in 2Q14, stable from 1Q14. ITD still has a high financial cost burden of 10-12% p.a. and high depreciation, but we expect the picture to improve as public - and private - construction takes off again.

Attractive with low EV/EBITDA. Because ITD has high depreciation, its EV/EBITDA in our view is the most attractive of peers at below 10x, falling to below 8x in 2016.

In line for huge projects. All large contractors - led by ITD - are in line to gain from the NCPO's Bt2.4trn in infrastructure projects. We believe ITD stands at the head of the line to get ~Bt513bn or 20% of domestic infrastructure projects, implying adding an average of Bt64bn each year for the next eight years (2015-2022). As an expert in both underground and above-ground transit, we strongly believe ITD will get a large share of the SRT's double-track projects and the underground Orange Line.

Near term government jobs. On 19 August 2014, the new MRT board will decide on the bidding for the Dark Green Line (Morchit-Kukot), comprised of four contracts. We expect it will begin with the first two civil work contracts valued at Bt14bn and Bt6bn. ITD is a good candidate to win. On the same day, the new SRT board will consider the time frame and method for bidding for double-tracking its line across the country. We estimate the value of this project country-wide at Bt475bn, starting with Bt11bn, with a second phase at Bt100bn. We believe ITD is best situated to win most of this because of its past experience.

Total backlog Bt276bn including Mozambique. Including the Bt120bn construction and operation of the railway line and deep sea port in Mozambique and the Bt40bn contract for the Mai Khot coal mine in Myanmar plus ~Bt23bn in other contracts, ITD has the sector's largest backlog of ~Bt276bn, up from Bt147bn last year.

Buy, TP Bt8.5, future looking very good. New projects at home and abroad, particularly after the government gets going on infrastructure, will bulk backlog and supply revenue through 2022. We value its construction business after net debt at Bt6.5/share, plus Bt2/share for the Mozambique project (construction only, not concession). We recommend BUY.




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