Looking much better in 2H14; upgrade to Buy
Nawarat Patanakarn Plc (NWR)
2Q14 and 1H14 recap. 2Q14 core profit was Bt30mn, up 36% YoY and 203%QoQ due to
resumption of operations at Mae Moh after a shutdown to repair machinery in 1Q14.
Gross margin in 2Q14 was 6.9%, up from 6.8% in 1Q14 and 5.2% in 2Q13. 1H14 core
profit was still poor at Bt40mn, -48%YoY, with a gross margin of 6.9%, close to 1H13's
6.8%. We expect it to turn in a gross margin of 7.8percent for the year. 1H14 accounted for
32% of our Bt127mn; we expect a much better 2H14.
Poor share from 40%-held C.I.N. in 1H14 at just Bt1mn versus Bt19mn in 1H13, but
income from C.I.N will restart in 4Q15 when it books revenue from ISSI Condominium
Suksawat. This 892-unit condo is valued at Bt1.8bn and is expected to bring Bt90mn in
4Q15 and Bt332mn in 2016 to NWR after an operational loss of Bt4mn in 2014.
2H14 profit expected at Bt97mn, Bt40mn in 3Q14 and Bt47mn in 4Q14, improving
both YoY and QoQ. A big part of the improvement will come from a widening in gross
margin to 8.8percent from 6.9% brought by a project from the BMA which we calculate offers
a high margin of above 8%. This is a drainage tunnel under Bangsue Canal valued at
Bt2.3bn, which is scheduled to begin full operations in 3Q14. A second contributor will
be higher property revenue from Baan Baranee, on which margin is 15-20%. NWR
booked Bt62mn in property revenue in 1Q14 and Bt63mn in 2Q14, accounting for 3% of
quarterly revenue. Though construction will continue to supply the bulk of its revenue
at 82%, it targets lifting the portion of property from 3% to 10% by 2015.
Current backlog Bt14bn, good future. NWR's backlog is stronger, adding Bt5.9bn in
the first seven months of 2014; it is bidding for another Bt7-8bn. The new projects
include construction of Baranee Park, Romklao valued at Bt500mn, road improvement
in Lao PDR valued at Bt600mn and jetty work in Rayong for Bt600mn. The return of
public works with huge infrastructure projects up for grabs will ease the competition
for jobs, opening the door for NWR to select good jobs with good margin.
Upgrade to BUY from Neutral and raise TP to Bt2.7 from Bt2.4 (30x 2015 PER).
We expect NWR to piggyback on the greatly improved climate for construction with a
flood of new jobs from 2015. Backlog is up and revenue from its property development
and condo projects (JV) will flow in from late 2015. We see its move into property
development as positive for the long haul, to make up for the natural troughs in