CH. Karnchang

A catchup play?
UNDERPERFORM - Maintained
Share Price: Bt10.30; target price: Bt9.60

CH. Karnchang (CK)

Although contractors will continue to benefit from tame building material prices and massive public works, CK's high net gearing makes us uncomfortable. We would turn more positive once its balance sheet is fixed. We revise up our core earnings forecasts on the back of a sustained benign environment for contractors and strong 9M12. We roll forward our target price from THB7 (based on 1.8x CY12 P/BV) to THB9.6, which is based on 2.4x CY13 P/BV - 1 s.d. above its 5-year historical average. However, we maintain our Underperform call on CK until its balance sheet is fixed

Listing of CK Power

Its recent rally could be due to some excitement on the listing of CK Power, which is slated for 1Q13. CK holds a 38percent stake in CKP. Its major assets include a 56percent stake in South East Asia Energy (SEAN), a 100percent stake in Bangkhen Chai, which operates a 8MW solar photovoltaic power park, and a 30percent stake in Nakhon Rathasima Solar, which operates a 6MW solar photovoltaic power park.Based on our calculation, CKP made about THB150m net profit in 3Q12.We do not have much financial information on CKP yet. But based on the current information of THB9.2bn registered capital, its ROE works out to only 6.5%.

20% topline growth in 2013

Management expects CK's revenue to grow 20% in 2013 from THB18bn-20bn in 2012 (+67-85%

yoy), which is conservative, given its huge backlog order of THB124bn. Major contributors to CK's revenues over the next couple of years include Purple Line Contract 1, Blue Line Contract 2 and 5, and Green Line Contract 1.

Maintain Underperform

With the recent share price rally, it is now trading close to 2 s.d. above its 5-year historical average for P/BV. We, therefore, believe further upside is limited, given that its financial situation is not yet fixed. The stock is now trading at 12% above its NAV and more than 36x CY13 P/E,which is not attractive. Reiterate Underperform.

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Article source: http://www.thethailandlinks.com/2012/12/07/ch-karnchang/