Analysts See Short-Term Impact on STEC from Closure of Worker Camps, Giving “BUY” Rating

Analysts recommended a “BUY” rating on Sino-Thai Engineering and Construction Public Company Limited (STEC) despite one month of closure of workers’ camps in Bangkok and Southern provinces to cope with growing Covid-19 infections.

The additional restrictions will have a negative impact on the company’s earnings since they may cause revenue recognition to be delayed, regardless of the government’s Covid relief package. The company’s current backlog exceeds 100 billion baht, and there is a chance for STEC to acquire new projects as a result of government infrastructure projects that will be released sequentially.

KTBST Securities (KTBST) holds a “BUY” rating on STEC with a target price of 17.50 baht, which is pegged to 2021E PER of 25.5x (its 5-yr average level). KTBST has a positive view of STEC’s earnings outlook given its substantial backlog of 100 billion baht (including the U-Tapao project) at end-1Q21 and the brighter prospects of large-scale infrastructure  projects. 

KTBST expects the government to accelerate the projects in the pipeline worth a combined 800 billion baht over the next 2-3 years after CKST-DC recently won the lowest bid for two of three contracts of the Denchai double-track rail project and the southern route to the Purple Line set to sell bidding envelopes in July. 

STEC’s JV has a high potential to win the civil work for the Purple Line’s southern route project, which would add 0.40 baht to the target price. KTBST maintains 2021E core profit forecast at 1.0 billion baht, which represents a +15% increase YoY. KTBST believes 2Q21E profit will grow YoY and do not expect a significant impact from the government’s latest order on the shutdown of worker camps in Bangkok.

STEC’s stock price fell 7% in one month, underperforming the SET Index by 8%, due to concern over the Covid-19 impact. KTBST believes STEC will outperform the benchmark index in the medium term. First, the Covid-19 situation will ease along with rising Covid-19 vaccination rates. 

Second, the company’s revenue visibility is quite strong given its sizable backlog, which can boost revenue growth over the next three years. Third, the company has a high potential to win more large-scale infrastructure projects, including the southern route of the Purple Line. Fourth, the company delivered the Parliament project in April, which earlier pressured the company’s profitability. Last, the stock  currently trades at an undemanding 2021E PER of 20x, which is -1 SD below its 5-yr average.

Analyst	Recommendation	Target Price
UOB-Kay Hian	BUY	21.00 Baht
Thanachart	BUY	19.00 Baht
TISCO	BUY	18.00 Baht
Maybank Kim End (Thailand)	BUY	18.00 Baht
KTBST	BUY	17.50 Baht