CK Posts Strong 3Q Growth, Maybank Recommends “BUY” at TP ฿31

After posting a strong earning in 3Q18 from CH. Karnchang Public Company Limited (CK), Maybank Kim Eng recommends “BUY”, giving a 12 months target price at ฿31.0/share from the previous share price at ฿25.75/share.

Strong 3Q18 earnings
CK reported a strong 3Q18 net profit of ฿1.3b, a jump of 137% QoQ and 105% YoY, higher than Maybank’s estimate of ฿1.2 billion, mainly driven by equity income from BEM and CKP, reaching ฿1 billion (+280% QoQ, +266% YoY).

The major contributors were BEM that CK currently holds 30% stake, which posted a profit of ฿3.1 billion, divided into the normalized profit of ฿918 million, while gains from investment and adjusting entries were ฿2.2 billion.

Revenue from construction business was slow down to ฿7.2 billion (-5%QoQ, -17%YoY). The gross margin improved to 8.2% vs 7.8% last quarter and 7.8% from last year. SG&A expenses rose to ฿511 million (+8% QoQ, +5% YoY). Interest expense was ฿311 million (-5%QoQ, -7%YoY).  For 9M18, revenue recognition was ฿22 billion, down 24% YoY while a net profit of ฿2.1 million, up 33% YoY.

 

Earnings outlook
As of 3Q18, CK has a relatively low backlog of about ฿55 billion, to support 1-2 years of revenue. In the remainder of FY2018 and 1H19, it expects to bid for auctions worth about ฿0.7-1 trillion and hopes to win about 20% of the total to fill the backlog. The 9M18 earnings were ฿2.1 billion, higher than our previous full year estimate of ฿1.8 billion, so we revising 2018 earnings to ฿2.5 billion up 37%YoY.

However 4Q18 earnings will slow down to around ฿300-400 million as no dividend from TTW around ฿232 million and BEM earnings will return to normal at around ฿900 million.

 

Risks that could affect the share price
1. Problems of construction
2. Cost of construction materials
3. Labour problems
4. Project delays