Analyst Expects SEAFCO to Excel in 2Q with Tremendous ฿2.5Bn Backlog, Giving TP at ฿7.90

KGI Securities has maintained the “Outperform” rating on Seafco Public Company Limited (SEAFCO) with a target price at ฿7.90/share.

 

KGI expects SEAFCO to report 1Q20 earnings of Bt101mn (-15.7% YoY, +19.0% QoQ). The decline YoY would be due to i) completion of One Bangkok and MRT Orange Line, and ii) lower gross margin due to less labour intensive work. The 1Q20 revenue is expected to report at Bt765mn (-10.1% YoY, +18.4% QoQ) due to completion of large-scale projects (The One Bangkok and MRT Orange Line), while gross margin should drop slightly QoQ to 20.7% (21.1% in 4Q19) due to good progress on the Dusit mixed-use project and Government Complex Zone C (labor including material work). If 1Q20 earnings are in line with the forecast, they would account for 28.3% of KGI’s full- year forecast.

 

2Q20 earnings to accelerate QoQ due to no public holiday (Songkran)

KGI expects 2Q20 earnings to accelerate QoQ due to the cancellation of the Songkran holiday which would increase equipment utilization rate (approximately 80% in 1Q20) and continued work on the Dusit mixed use project, Government Complex Zone C, Rama III-Dao Kanong, Mochit complex projects would support higher revenue recognition QoQ.

Citing information provided by SEAFCO’s management KGI states that all of its sites are complying with EIA and not working at night (after 9pm). The impact would be limited as SEAFCO has changed working schedules until 8pm only.

The current backlog of Bt2.56bn already secured 85% of our 2020 revenue projection which would reduce the negative impact from a delay in awarding new projects due to the COVID-19 outbreak. The company’s 2021 backlog would be from mega infrastructure projects such as i) high-speed train project linking three airports, ii) U-Tapao Airport City, and iii) MRT Red Line, etc. These projects are expected to contribute 48% of our 2021 revenue forecast.

 

In addition, KGI maintains a rating of Outperform with a 2020 target price of Bt7.90 based on long-term average PER+0.5SD of 16.0x. The current share price provides an attractive dividend yield of 5.0% in 2020 – 2021 and is trading below PER-1SD. The easing of the lockdown would be the key short-term catalyst to the share price.

KGI expects SEAFCO to secure a sizable backlog from public projects in 2021 as it has the highest market share in the industry (38% in 2018) and a strong track record of winning on large scale projects (MRT Orange line, The One Bangkok).