CGS-CIMB

The ฿224 billion megaproject to construct high-speed railway connecting Thailand’s Suvarnabhumi Airport, Don Muang Airport, and U Tapao Airport will announce the auction winner on December 3, 2018. There are two major consortiums to participate in this auction, which are CP and BSR. CP consortium comprises with 70% from Charoen Pokphand Group (CP), 5% from CH. Karnchang Public Company Limited (CK), 10% from Bangkok Expressway and Metro Public Company Limited (BEM), 5% from Italian-Thai Development Public Company Limited (ITD) and 10% from China Railway Construction Corporation (CRCC). While BSR consortium comprises with 60% from BTS Group Holdings Public Company Limited (BTS), 20% from Sino-Thai Engineering and Construction Public Co., Ltd. (STEC), and 20% from Ratchaburi Electricity Generating Holding Public Co., Ltd. (RATCH). CGS-CIMB Securities (Thailand) Co., Ltd. states in the analysis that CP consortium may have a higher chance of winning the project as CP Group has strong connections with the government, strong financial, experience in retail business, and professional track record from CK and ITD. Although BSR has STEC as a team member, its track record may not reach CK and ITD’s level. CGS-CIMB also analyzes CK’s share, assuming CP consortium wins the project, by giving CK’s backlog to grow twice as it already is. CK currently holds ฿55.4 billion backlog orders, which is equivalent to 1.8 years of its revenues. The construction works for the high-speed railway is about ฿120 billion, which means CK will book ฿60 billion to its revenue, assuming CK shares half of the construction work with ITD. Although the announcement for the winner is right around the corner, and whether who wins the project, the construction will probably start at the beginning of 2020, and will take around three years to finish. Thus, CK could receive ฿20 billion a year for three consecutive years. Due to the high potential of acquisition the project, CGS-CIMB upgrades CK from “reduce” to “hold”, but maintains the target price at ฿25.00/share, based on 23x FY20F P/E, -0.5 s.d. From its five-year mean.