RHB Research RHB Research | See important disclosures at the end of this report A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com 1 Key Market Indices (26 March 2013) Key Statistics Value Change % Change % YTD SET Value by investor Type: Daily SET 1544.03 20.08 1.3% 10.9% Buy (THBm) Sell (THBm) Net (THBm) SET50 1015.99 13.56 1.4% 7.5% Institution 4,392.51 2,414.74 1,977.77 SET100 2277.53 30.41 1.4% 9.6% Proprietary 7,144.84 7,856.42 -711.58 Foreign 12,469.64 11,801.64 668.00 Dow Jones 14559.65 111.90 0.8% 11.1% Retail 36,780.27 38,714.46 -1,934.19 S&P500 1563.77 12.08 0.8% 9.6% Nasdaq 3252.48 17.18 0.5% 7.7% SET Value by investor Type FTSE 6399.37 20.99 0.3% 8.5% MTD (THBm) YTD (THBm) FSSTI 3288.53 21.05 0.6% 3.8% Institution 8,383.94 28,215.92 Hang Seng 22311.08 59.93 0.3% -1.5% Proprietary 386.08 -2,161.20 Nikkei 12482.45 -64.01 -0.5% 20.1% Foreign 5,058.68 2,708.62 KLCI 1652.83 8.94 0.5% -2.1% Retail -13,828.69 -28,763.34 SHANGHAI SE 2297.67 -29.05 -1.2% 1.3% JCI 4842.52 64.62 1.4% 12.2% SET50 Index Future Long Short Net MTD YTD SET 5-yr avg 2011 2012F Institution 7,171 6,388 783 -300 5,702 PE (x) 14.4 17.7 14.2 Foreign 14,717 14,022 695 -2,557 -14,456 P/BV(x) 1.9 2.5 2.3 Local 15,334 16,812 -1,478 2,857 8,754 Yield(%) 4.0 2.7 3.2 MARKET DATELINE THAILAND EQUITY Investment Research Morning Matters WHAT’S INSIDE On the Platter Loxley (LOXLEY TB; FV THB10.60 – TRADING BUY) Company Update: Integrating the Future We initiate coverage on Loxley with a TRADING BUY and our FV at THB10.60, based on 3.6x FY13 P/BV. As a leading ICT contractor, the company is set to benefit from the rising investments in the ICT sector, which will provide it ample opportunity to further grow its backlog. Its ability to secure more backlog is not a worry, but the execution risks in turning the extra backlog into profit remains a key concern. Toyo-Thai Corp (TTCL TB; FV THB49.30 – BUY) Company Update: Spreading Its Wings Abroad Toyo-Thai Corp (TTCL)’s fundamentals remain robust and it has won more projects than we have expected. Besides winning the highly-anticipated THB6.4bn desalination plant project in Qatar, it is expanding its footprint in Myanmar. In light of this, we believe that its overseas operation will be a major growth driver, potentially leading to a three-year earnings CAGR of 27% from 2013F to 2015F. MEDIA HIGHLIGHTS • Pipelilne EIA approval broke law, says judge • Eco-car expansion considered • Bond market chief sees no need for rate cut • Auto lenders shift focus as first-time buyer scheme ends • InTouch plans six joint ventures this year • PTT allots B1.3bn for industrial eco-estate • LPN, Siam Future plan Rangsit community mall ECONOMIC HIGHLIGHTS • Indonesia: Panel approves Martowardojo as Central Bank Governor • China: Banks’ bad loan ratios shrink as default wave averted • BRICS: Nations plan new bank to encroach on World Bank turf • Euro: Sarris Muffles calls for Cyprus’s exit from Euro Area • US: Durable goods orders rise as companies expand • US: Home prices in 20 cities climb by most since June 2006 27 Mar 2013 SET Intraday Chart
Transcript
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Key Market Indices (26 March 2013) Key Statistics
Value Change % Change % YTD SET Value by investor Type: Daily SET 1544.03 20.08 1.3% 10.9% Buy (THBm) Sell (THBm) Net (THBm) SET50 1015.99 13.56 1.4% 7.5% Institution 4,392.51 2,414.74 1,977.77 SET100 2277.53 30.41 1.4% 9.6% Proprietary 7,144.84 7,856.42 -711.58 Foreign 12,469.64 11,801.64 668.00 Dow Jones 14559.65 111.90 0.8% 11.1% Retail 36,780.27 38,714.46 -1,934.19 S&P500 1563.77 12.08 0.8% 9.6% Nasdaq 3252.48 17.18 0.5% 7.7% SET Value by investor Type FTSE 6399.37 20.99 0.3% 8.5% MTD (THBm) YTD (THBm) FSSTI 3288.53 21.05 0.6% 3.8% Institution 8,383.94 28,215.92 Hang Seng 22311.08 59.93 0.3% -1.5% Proprietary 386.08 -2,161.20 Nikkei 12482.45 -64.01 -0.5% 20.1% Foreign 5,058.68 2,708.62 KLCI 1652.83 8.94 0.5% -2.1% Retail -13,828.69 -28,763.34 SHANGHAI SE
2297.67 -29.05 -1.2% 1.3% JCI 4842.52 64.62 1.4% 12.2% SET50 Index Future Long Short Net MTD YTD SET 5-yr avg 2011 2012F
Loxley (LOXLEY TB; FV THB10.60 – TRADING BUY) Company Update:
Integrating the Future
We initiate coverage on Loxley with a TRADING BUY and our FV at THB10.60,
based on 3.6x FY13 P/BV. As a leading ICT contractor, the company is set to
benefit from the rising investments in the ICT sector, which will provide it
ample opportunity to further grow its backlog. Its ability to secure more
backlog is not a worry, but the execution risks in turning the extra backlog into
profit remains a key concern.
Toyo-Thai Corp (TTCL TB; FV THB49.30 – BUY) Company Update:
Spreading Its Wings Abroad
Toyo-Thai Corp (TTCL)’s fundamentals remain robust and it has won more
projects than we have expected. Besides winning the highly-anticipated
THB6.4bn desalination plant project in Qatar, it is expanding its footprint in
Myanmar. In light of this, we believe that its overseas operation will be a major
growth driver, potentially leading to a three-year earnings CAGR of 27% from
2013F to 2015F.
MEDIA HIGHLIGHTS • Pipelilne EIA approval broke law, says judge
• Eco-car expansion considered
• Bond market chief sees no need for rate cut
• Auto lenders shift focus as first-time buyer scheme ends
• InTouch plans six joint ventures this year
• PTT allots B1.3bn for industrial eco-estate
• LPN, Siam Future plan Rangsit community mall
ECONOMIC HIGHLIGHTS • Indonesia: Panel approves Martowardojo as Central Bank Governor
• China: Banks’ bad loan ratios shrink as default wave averted
• BRICS: Nations plan new bank to encroach on World Bank turf
• Euro: Sarris Muffles calls for Cyprus’s exit from Euro Area
• US: Durable goods orders rise as companies expand • US: Home prices in 20 cities climb by most since June 2006
27 Mar 2013
SET Intraday Chart
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MEDIA HIGHLIGHTS
Pipelilne EIA approval broke law, says judge The approval of the environmental impact assessment (EIA) for the Thai-Malaysian gas
pipeline in Songkhla 12 years ago was illegal, a Supreme Administrative Court judge said
Tuesday. However, judge Panuphan Chairat stopped short of ordering the revocation of
the pipeline's permit, as demanded by a group of 18 residents from Songkhla's Chana
district. In his opening statement, Judge Panuphan said the NEB approved the EIA despite
rejecting a social impact assessment and mitigation plan submitted by the developers.
(Bangkok Post)
Eco-car expansion considered
The government may issue a second invitation for its eco-car project to help spur
automobile production, say well-placed sources. The populist policy may have stirred up
controversy, but the tax rebates to customers helped to boost annual domestic vehicle
sales to 1.3 million units last year. Leading car companies that have established large
manufacturing facilities in Thailand but missed out on the eco-car boat have expressed
approval for the anticipated second round of applications. (Bangkok Post)
Bond market chief sees no need for rate cut The Monetary Policy Committee may not need to cut the policy interest rate after all even
though an influx of speculative foreign funds has caused volatility and the baht
appreciation, according to the Thai Bond Market Association (TBMA). Foreign funds have
continued to flow into Thailand and the majority of them have gone to bonds so far this
year. The interest rate cut might fail to address the baht appreciation, as short-term
foreign investors could still perceive the local bond market as an attractive spot due to
strong economic fundamentals underscored by a relatively high growth rate and lower
external debts and unemployment rate. (Bangkok Post) Auto lenders shift focus as first-time buyer scheme ends Pairote Cheunkrut, managing director of Ayudhya Capital Auto Lease Plc (Krungsri Auto),
the auto leasing subsidiary of Bank of Ayudhya, said the company will diversify into
hybrids and family cars to offset the slowdown in eco-car loans. Meanwhile, Pinyawat
Chantrakarntanon, the managing director of KTB Leasing, a subsidiary of Krungthai Bank,
said demand for eco-cars has slowed since the end of the first-car scheme. (Bangkok
Post)
InTouch plans six joint ventures this year InTouch Group, Thailand's largest telecommunications conglomerate, says it will enter
into joint ventures with six companies this year. InTouch Plc (INTUCH), through its
venture capital arm InVent, last September signed its first deal by acquiring a 25% stake
in digital publication firm Ookbee for 57.8 million baht. Formerly Shin Corporation,
InTouch in mid-2012 launched a 200-million-baht corporate venture capital fund to invest
in promising firms in the fields of information technology, broadcasting content, telecoms
and media. The diversification was part of the group's strategy to reduce its heavy
reliance on telecom business. The company plans to spend 200 million baht a year to
acquire firms worth at least 5 million baht each. InTouch will invest in each firm for three
to five years with a minority stake in each deal. (Bangkok Post)
PTT allots B1.3bn for industrial eco-estate PTT Plc, the national oil conglomerate, is spending 1.3 billion baht to develop Thailand's
first zero-wastewater industrial estate for bio-petrochemicals and biofuels, with
operations expected to start in 2015. Nattachart Charuchinda, chief executive of
operations for the downstream petroleum group, said the project is located on 1,500 rai
near the Map Ta Phut Industrial Estate. The project will use a 100% wastewater recycling
system and designate 80% of space for manufacturing, 15% for a green area and 5% for
a back-up office and research and development facilities. Recent construction is expected
to serve the group's future projects such as biodegradable plastic made from lactic acid
and succinate acid. (Bangkok Post)
LPN, Siam Future plan Rangsit community mall LPN Development is joining with Siam Future Development to develop a Bt300-million
community mall in Rangsit. It will be located at LPN's condominium project called Lumpini
Township Rangsit-Klong 1 that will debut in the second half of this year with 10,000 units
worth Bt7 billion.The condo project will occupy 100 rai (16 hectares) on Rangsit Klong
1.The starting price is Bt600,000 per unit.From the first joint venture at Rangsit-Klong 1,
the company wants to expand the model to other condo projects nationwide. Lumpini
Township Rangsit-Klong 1 is one of 13 condo projects worth Bt25 billion in the launch
pipeline this year. (The Nation)
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ECONOMICS HIGHLIGHTS
Indonesia: Panel approves Martowardojo as Central Bank Governor
Indonesian lawmakers yesterday approved Finance Minister Agus Martowardojo to
become the next central bank governor after he said his priorities would be a stable
exchange rate and keeping inflation low. Commission XI, a parliamentary panel for
financial affairs, voted in favor by 46 to 7, with one abstention. President Susilo Bambang
Yudhoyono had nominated Martowardojo to succeed Governor Darmin Nasution, whose
term ends 23 May. The approval allows the president to reshuffle his top economic team
as Southeast Asia’s biggest economy grapples with a weakening currency, a current-
account deficit and inflation stemming from power-tariff increases and higher wages.
(Bloomberg)
China: Banks’ bad loan ratios shrink as default wave averted China’s largest banks posted a decline in bad-loan ratios for 2012 amid the slowest
economic expansion in 13 years, signaling policy makers may have averted a surge in
defaults. The gauge shrank to 1.33% at Agricultural Bank of China Ltd., the nation’s
third-largest by market value, from 1.55% in 2011, while net income increased by 19%,
the Beijing-based lender said yesterday. At Bank of China Ltd., the fourth-largest, non-
performing loans dropped to 0.95% of the total from 1%, while profit climbed 12%. The
outstanding amount of bad loans at Chinese lenders increased for a fifth straight quarter
in the 4Q12, the longest deterioration streak since data became available in 2004, to
RMB492.9bn as of Dec. 31, the China Banking Regulatory Commission said March 1.
(Bloomberg)
BRICS: Nations plan new bank to encroach on World Bank turf The biggest emerging markets are uniting to tackle under-development and currency
volatility with plans to set up institutions that encroach on the roles of the World Bank
and International Monetary Fund. The leaders of the so-called BRICS nations - Brazil,
Russia, India, China and South Africa - are set to approve the establishment of a new
development bank during an annual summit that began today in the eastern South
African city of Durban, officials from all five nations say. They will also discuss pooling
foreign-currency reserves to ward off balance of payments or currency crises.
(Bloomberg)
Euro: Sarris Muffles calls for Cyprus’s exit from Euro Area
Finance Minister Michael Sarris sought to muffle calls for Cyprus to weigh a precedent-
setting exit from the euro to ease the economic pain inflicted by the country’s EUR10bn
bailout. The option of eventually pulling out of the currency was floated yesterday by a
Nobel prize winner now advising the government, Christopher Pissarides, and Nicholas
Papadopoulos, head of the parliament’s finance committee.“It would be catastrophic to
even talk or entertain the idea and much less exit the euro zone,” Sarris said in an
interview. Restrictions on money transfers probably won’t be loosened for weeks as the
island digests the impact of the European decision to close the second-largest Cypriot
bank and impose losses on uninsured depositors, he said. (Bloomberg)
US: Durable goods orders rise as companies expand Orders for US durable goods climbed more than forecast in February as companies looked
past budget squabbles in Washington and focused on expanding capacity to meet
growing demand. Bookings for goods meant to last at least three years rose 5.7%, the
most since September, after a 3.8% drop the prior month, the Commerce Department
said. Households are also poised to keep spending as rising property values help repair
finances tattered by the recession even as concern about government budget cuts shakes
Americans’ sentiment. (Bloomberg)
US: Home prices in 20 cities climb by most since June 2006
Residential real estate prices increased in January by the most since June 2006,
indicating the US housing market strengthened at the start of the year. The S&P/Case-
Shiller index of property values in 20 cities climbed 8.1% in January from the same
month in 2012 after rising 6.8% in the year ended in December, the group said today in
New York. Improving home values will lure more buyers into the real estate market by
inducing current owners to put their properties up for sale and prompting builders to
begin work on new dwellings. Historically low lending rates and a stronger labor market
have helped fueled the rebound in housing, which is a source of strength for the
economy. (Bloomberg)
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Most Active Volume (shares) NVDR Shares to Total Paid-up Shares(%)
NET BUY NET SELL Month to Date Year to Date
Most Active Values (Btmn)
THAI NVDR : Top Ranking
RHB Research 26 Mar 2013
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THAILAND EQUITY
Investment Research
Daily
Initiating Coverage
Loxley
Integrating The Future
We initiate coverage on Loxley with a TRADING BUY and our FV at
THB10.60, based on 3.6x FY13 P/BV. As a leading ICT contractor, the
company is set to benefit from the rising investments in the ICT sector,
which will provide it ample opportunity to further grow its backlog. Its
ability to secure more backlog is not a worry, but the execution risks in
turning the extra backlog into profit remains a key concern.
An integrated ICT contractor. Despite having diversified exposure in several
core business segments, Loxley can be more appropriately classified as an
integrated ICT contractor, as about 70% of its revenue comes from its ICT
business. With a growing backlog, its exposure to the ICT sector is set to
increase further to the point where its ICT segment will continue to be the key
driver for the group’s future prospects.
Strong backlog, with further room to grow. As at early-FY13, Loxley’s ICT
and project backlog stood at around THB8bn. 70% of it will be recognized as
revenue in FY13 due to the short-term nature of the ICT contracts. Loxley has
also identified THB28bn worth of high-potential projects from its existing and
new clients from which it stands a good chance of capturing and adding on to
its backlog in FY13.
TRADING BUY. We initiate coverage on Loxley with a TRADING BUY and a FV
of THB10.60, based on 3.6x FY13 P/BV, which is equivalent to a 10% discount
to the average P/BV of its peers AIT and SAMART. While Loxley is an integrated
ICT contractor, just like AIT and SAMART, we think the discount is reasonable,
taking into account that Loxley is a diversified conglomerate, compared to its
pure ICT peers. The discount also accounts for its relatively lower profitability,
compared to its peers.
Thailand Research 66 2862 9755
Trading Buy Target THB10.60
Previous
Price THB6.95
Telecommunications
Loxley is a Thai conglomerate companies
that involves in ICT business, Trading,
Service and investments in JV companies
Stock Statistics
Bloomberg Ticker Loxley TB
Market Cap THB13,755m
USD469m
52 wk H/L price
(THB)
8.05 3.10
3m ADT THB554m
YTD Returns (%) 29.7
Beta (x) 1.32
Major Shareholders (%)
Ekpavee Co. Ltd 26.49
Thai NVDR 3.94
Share Price Performance (%)
Month Absolute Relative
1m 0.8 1.9
3m 24.8 14.2
6m 46.2 27.8
12m 67.9 40.3
6-month Share Price Performance
79
99
119
139
159
179
199
2.6
3.6
4.6
5.6
6.6
7.6
8.6
26-M
ar-1
2
25-M
ay-1
2
26-J
ul-1
2
26-S
ep-1
2
27-N
ov-
12
28-J
an-1
3
Price Close Relative to Stock Exchange of Thailand Index (RHS)
Source: Bloomberg
Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Total turnover (THBm) 10,413 14,248 14,279 18,303 20,765
Recurring net profit (THBm) 367 307 526 669 847
Recurring net profit growth 18.2% (16.4%) 71.5% 27.1% 26.7%
Core EPS (THB) 0.18 0.15 0.26 0.33 0.40
Core EPS growth 18.2% (16.4%) 71.5% 27.1% 18.8%
DPS (THB) 0.05 0.08 0.15 0.19 0.21
Dividend Yield 0.8% 1.1% 2.3% 2.9% 3.3%
Core P/E (x) 35.7 42.7 24.9 19.6 16.5
Return on average equity (3.5%) 7.5% 12.6% 12.7% 13.2%
P/B (x) 3.34 3.24 3.05 2.09 2.26
EV/EBITDA (x) 18.3 12.6 17.9 15.6 11.3
Net debt to equity 13.8% 49.4% 88.3% 36.8% 39.9%
RHBRI vs consensus EPS
Source: Company data, RHBRI estimates
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COMPANY BACKGROUND
Brief history. Loxley began as a trading company in 1939 under the name Loxley Rice Company
(Bangkok), as a JV between Ng Yok Long Lamsam and WR Loxley of Hong Kong. The original
activities were the export of rice and lumber. By 1957, its main business shifted to selling imported
industrial products, including those with advanced technology of the day. On 1 April 1993, it went
public under the name of Loxley Public Company Limited, and was subsequently listed on the Stock
Exchange of Thailand on 25 Jan 1994. Today with dozens of subsidiary and associated investments,
its business activities can be divided into four main business groups namely: i) ICT and projects, ii)
trading, iii) services, and iv) joint ventures and associate investments. Loxley’s ICT and project
business can be broken down into three subdivisions: i) ICT and telecommunications, ii) projects,
and iii) technology.
An integrated ICT contractor. Despite having diversified exposure in several core segments, we
think Loxley can be more appropriately classified as an integrated ICT & telecom-related contractor,
where around 70% of its revenue is from the ICT business segment. With a growing ICT backlog,
its exposure to the ICT sector is set to increase further to the point where the segment will
continue to be the key driver for the company’s future growth.
Figure 1: Loxley’s business and organizational stru cture
Source: Bloomberg
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SEGMENTAL OVERVIEW
ICT & PROJECT BUSINESS
ICT & Telecom business
The ICT business is divided into two business divisions comprising Telecommunications and
Computer products. The Telecommunications unit is responsible for complete telecommunications
infrastructure services, telecommunications equipment distribution and wireless broadband internet
services, while the Computer Products division is responsible for IT installations for the government
as well as private sector. Apart from that, it has reoccurring revenues for the maintenance,
expansion and modification of systems nationwide. Loxley is expected to help maintain ToT’s 3G
Phase 1 network as part of a concession, as well as for a submarine cable in the Gulf of Thailand
which connects up the country’s gas rigs that stretches to the Songkla province in the South of
Thailand.
Figure 2: Loxley’s products and services offered un der its ICT business
Computer and Telecommunication products and software sales
Wireless Broadband Solutions & Products
IT Total Solution Provider, Internet System Integration, Outsourcing, e-Service, e-Biz
Consulting/IT Training, Web-based Integration System Management
Provides e-Learning service
Provides complete solutions for e-Commerce, information security, ATM and smart cards
Teleservice Solution Provider, call center service, telemarketing service
Provides Satellite Images, GIS software system and service
Developed and delivered many computer systems and services to government and public
sectors in finance, automotive, heavy industry, hospital, manufacturing, chemical, education,
entertainment, transportation and electronics
Provides the real-time integrated services for fleet management, which covers real-time
tracking, driving route setting and driving behavior, and also combines GSM networks, GPS
Satellites and Digital Map technologies for call center monitoring
Develops and offers sales management system under the name of MCE (Mobile Convergence
Expert)
Distributes products and services in site survey, system design, procurement, installation,
test, commissioning and warranty for large scale telecommunication systems including fiber
optic, microwave, satellite earth station, mobile SNG and base station systems for mobile
phones.
Front-end survey application for automobile claim services. The system provides all the
necessary applications and synchronizes the information amongst all the three involved
parties, namely, the call center, the claim agent and the claim expert.
Sales data synchronization application between handheld mobile devices to the corporate
computer network via advanced communication technologies
Design and implement open source software for government agencies and corporations
Source: Loxley
Project business
Loxley is involved in operations such as TV and Radio communications, energy processes, electrical
systems and waste water management, amongst others. These are all assigned by the government
and usually awarded in an auction. The company’s project business broadly encompasses all that is
not related to telecommunications and is mostly ICT-related. Currently, its project business comes
from government institutions. It is the representative of authorized dealers of TV and radio
transmitter equipment, as well as equipment associated with TV and radio broadcasting such as
Studio. The company is also a systems integrator for large bidding projects. This includes
designing, installing and building radio and TV stations for government agencies, state enterprises
and private organizations.
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Technology business
For its technology division, Loxley provides services and procures technology products, e.g. it is a
3G mobile service reseller and distributes mobile phones and related products as well. It also
provides services and sales of printing products, installs systems for expressway management and
railway, as well as provides real estate management services. The company was chosen by ToT to
be a 3G mobile phone ‘reseller’ or a Mobile Virtual Network Operator (MVNO) and is licensed by the
National Broadcasting and Telecommunications Commission (NBTC) to operate under the Type 1
telecommunications service. Its iKool Real 3G mobile service brand has been operating for two
years, albeit at a loss. Loxley has been selling mobile phone devices and is the distributor of Sony
Ericsson phones and is also an importer and distributor of tablets from Apple as well as other
brands.
TRADING BUSINESS
The group’s trading division engages in manufacturing and distribution of equipment for the
consumer, industrial chemical, computer, and telecommunications industries. It also distributes
construction equipment and services, as well as automobile and other specialized procurement
services.
Figure 3: Products under Loxley’s trading division
Source: Loxley
SERVICE BUSINESS
The group offers security services at the Suvarnabhumi Airport, security equipment and systems
for office buildings, hotels, and hospitals, as well as businesses in media, education and
entertainment. Its trading business is anchored by Asia Security Management (ASM), a JV between
Loxley and ICTS Europe Holdings, a leading security provider in Europe.
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JV BUSINESS
BP-Castrol (45%)
Loxley has partnered with BP Oil to jointly form a business that manufactures and distributes
engine lubricants for the CASTROL and BP brands. While both products have different market
potential, they are both well-perceived. As raw materials are mostly sourced from Thailand, there is
some security to the supply chain, and the product costs incurred may be potentially lower
periodically. BP Castrol (Thailand) is among the top five leaders, commanding a 65% market share,
while the remaining 35% is split among 200 small domestic brands.
Thai Fiber Optics (40%)
Thai Fiber Optics Co (TFOC) is a JV with Bangkok Telecom, a leading copper telephone cable
manufacturer in Thailand which offers fibre optics design and manufacturing services supervised by
world leader Furakawa Electric of Japan. TFOC has been involved in projects to install 3G
infrastructures for ToT’s Phase1 network, broadband internet and WIFI networks. The company will
supply materials for the network should Loxley win the project for Phase 2 of its expansion.
BlueScope Steel & BlueScope Lysaght (25%)
BlueScope Steel (Thailand) and BlueScope Lysaght (Thailand) are JVs between Loxley Plc and
BlueScope Steel. BlueScope is an Australian world leader in coated steel and has its largest
overseas investment in Thailand, where it manufactures and distributes zinc-coated steel, pre-
painted steel and aluminium/zinc alloy-coated steel. The company’s steel production plant is
located at Map Ta Phut and includes metallic coating lines and a painting operation. This plant is
the sole manufacturer of ZINCALUME, which provides a protective barrier for zinc alloy-coated steel
and has up to four times the life of galvanized steel. CRP ANTIBACTERIAL, another Thai innovation,
is a pre-painted galvanized steel product specially designed for a cool room panel application for
the food industry. The product is designed to meet USDA requirements.
L Solar 1 (45%)
The company has been constructing its 8.7MW solar energy power plant on 215 rai of land in
Bothong District, Kabinburi, Prachinburi where generation capability is 11m-12m kWh. The
company’s operations are supported by the government, e.g. promotions for investments in the
solar energy power plant by the Board of Investment of Thailand (BOI), with additional benefits
from the Provincial Electricity Authority (PEA) for renewable energy producers. Loxley can also
supply power transmission lines from solar panels to the Provincial Electricity Authority (PEA), and
provide consultations as well as install equipment for private solar farms.
Loxley GTECH Technology (LGT)
The company is a JV between Loxley and GTECH Corporation group. It is the provider of the Online
Lottery System Service Contract for the Government Lottery Office (GLO). The contract includes
the design, procuring, implementing and operating of the Online Lottery System. The system
consists of the two Data Centers (one for primary and the other for backup), an online
communication network system, and the installation of terminals to retailers selected by GLO. The
lottery contract was signed in 2006. LGT invested THB2bn in machine installation. The company will
receive 75 satang in returns per transaction. Lottery ticket sales total THB3bn per draw, which
translates into a profit of THB1.5bn a year.
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FINANCIALS
ICT & projects the biggest revenue contributor. In FY12, Loxley’s ICT & projects segment
contributed the lion’s share to the group’s topline, accounting for about 67% of total revenue. This
was followed by its trading and services segments which contributed about 27% and 6% of the
total revenue respectively. Revenue contribution from ICT & projects has been on an uptrend over
the last few years, up from 50% of total revenue in FY08 to 67% last year, owing to the higher
backlog as the company secured more contracts. While the ICT & projects segment recorded a
8.8% y-o-y growth in FY12, the group’s total revenue was relatively unchanged y-o-y due to the
16.1% y-o-y contraction in revenue from its trading business, partly due to the impact from the
devastating floods in late 2011.
Figure 4: FY12 revenue breakdown
Source: Loxley
Figure 5: Historical breakdown of revenue by segmen t since 2008
Source: Loxley
JVs the biggest bottomline contributor in FY12. On the whole, Loxley’s subsidiaries did not
contribute any EBIT for FY12. However, according the notes to its financial statements, there are
slim margins of around 3% for its key ICT & projects business, as well as for its services segment.
Its trading division appeared to be in the red, partly due to the impact from the post-flood crisis
coupled with the extremely thin margins characteristic of this business. As such, all of Loxley’s net
profit in FY12 came from its JV and associates business, driven by strong earnings growth from BP
Castrol, BlueScope and L-Solar 1. In FY12, Loxley’s JV and associate companies generated a total
net profit of THB2.2bn, of which THB702m was earnings from its equities.
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Figure 6: Total and equity profit from Loxley’s JV a nd associate companies in FY12
Source: Loxley
Figure 7: Equity profit structure from Loxley’s JV an d associate companies in FY12
Source: Loxley
Decent balance sheet with room for improvement. At a D/E ratio of 1.8x as at end-FY12,
Loxley’s balance sheet was relatively highly-geared due to its high borrowings to finance its
expansion and investments. Nevertheless we think the balance is decent enough, and has some
scope for further improvement as the company explores other avenues to raise capital for future
expansion and investments, such as through the upcoming public offering (PO) of 165m new
shares which is expected to raise about THB1bn. The proceeds from the PO will be utilized for
additional project investments both locally and abroad, as well as to fund working capital.
Figure 8: Loxley’s consolidated balance sheet for F Y12
Source: Loxley
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KEY INVESTMENT HIGHLIGHTS
SURFING HIGH ON ICT BOOM
Strong backlog with further upside to grow. As at early-FY13, Loxley’s ICT & Projects backlog
stood at around THB8bn. 70% of it will be recognized as revenue in FY13 due to the short-term
nature of the ICT contracts. Loxley has also identified THB28bn worth of high-potential prospective
projects from its existing and new clients where it stands a good chance of winning them. Among
them are ToT’s 3G infrastructure roll-out Phase 2 worth THB10bn, as well as a THB9bn fibre optics
project in Myanmar. It also has indentified the THB4.5bn Water Resources Management Platform
(WRMP) project, which is part the government’s THB350bn flood prevention and management
initiative. WRMP will involve centralizing and implementing the country’s water management via a
desktop computer, whether it is increasing water flows to agricultural fields in the Central Plains or
diverting water to the sea from retention centers. Supported by its strong working relationship with
its government agency clients, we believe Loxley should be able to win some of those high potential
projects and thus further expand its backlog. Apart from high revenue visibility arising from the
high backlog, the company should be able to benefit from economies of scale, especially in
procuring devices and technology.
Figure 9: Breakdown of Loxley’s current THB8bn ICT & Projects backlog
Source: Loxley
Figure 10: Strong ICT backlog with plenty of room to grow
Source: Loxley
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Smart Thailand project. Loxley is also eyeing some portion of the government’s THB80bn ICT
infrastructure project aimed at improving the broadband network across the country, known as the
Smart Thailand project. Under the project, the government aims to expand the coverage of
broadband network to 80% of the population in three years, and 95% of the population by 2020.
The project is divided into two phases. The first phase, which is set to kick-start this year and be
completed in 2015, will involve upgrading the existing telecom networks to reach 80% of the total
population. The second phase, which will span from 2016 until 2020, will entail the installment of
broadband network in areas where fibre-optic network is not yet available. Under the Smart
Thailand project, the fibre optic network will be used as the main broadband network nationwide,
including in public areas such as schools, hospitals and government places, while the Internet
connection will be provided at affordable costs or free of charge. In addition, the government will
initiate free Wi-Fi projects in collaboration with service providers to offer the service in remote
areas. In view of its strong track record, we think Loxley stands a good chance of being selected to
participate in the rollout of the Smart Thailand project.
Benefiting from massive 3G investment. In preparation for Thailand’s first 3G wave, the
government has allocated THB7.6bn for the ICT sector in FY13, up 102% y-o-y. While the amount
may be small, it signals the government’s increasing attention on the sector, which has high
potential for growth. We believe the budget for the sector will continue to grow in the future, as
state telcos and private players are ramping up upgrades on their existing networks. As such, we
think Loxley, being one of the leading players in the field coupled with its strong track record and
experience, stands to benefit from the new systems integration and upgrading works of existing
systems.
Figure 11: Timeline of TOT’s 3G installation
Source: SAMART
Digital TV. According to Thailand’s latest National Radio and Television Broadcasting Act, there is a
possibility that broadcasting will move to digital technology. This will help stimulate broadcasters to
expand their businesses by going digital. In this sense, the potential for growth is vast. The shift in
broadcasting devices to digital TV systems for five networks in Thailand is estimated to be worth
around THB15bn. Moreover, the government controls the majority of TV stations and Loxley has a
high chance of winning a good deal of the bids. Customers include the Public Relations Department,
Royal Thai Army Radio and Television, MCOT Pcl, Parliament Radio and Television Station and the
Military’s broadcasting channel as well as the Military Development Office.
New opportunities in neighbouring countries. Supported by its vast experience in the
domestic ICT sector, Loxley’s management sees opportunities to provide ICT services abroad as
part of its expansion strategy. It is collaborating with AIT in a 50:50 joint venture named Loxley &
AIT Holdings Co Ltd, which will be investing in new projects abroad as well as at home. One of
these is the THB9bn fibre optic cable project in Myanmar, which is expected to be finalized soon.
Other than that, Loxley is also keeping an eye on potential ICT projects in Cambodia, Vietnam and
Laos.
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FAVOURABLE OUTLOOK FOR TRADING BUSINESS
Construction materials trading division to benefit from construction boom. Currently, the
backlog for its construction materials trading division stands at THB2.74bn, most of which comes
from mass transit-related projects. As a leading construction materials trading company in
Thailand, Loxley is expected to reap benefits from a booming construction sector in Thailand as well
as the expansion of the mass transit routes in the Greater Bangkok region. Apart from the domestic
construction materials market, it has also cast its sights on the opportunities in supplying
construction materials to tap into the construction boom in Myanmar.
Bringing Thai brands to China. Loxley’s China office has been helping Thailand’s small and
medium enterprises (SMEs) to introduce their products to the Chinese market. As it is not very
cost-effective for Thai SMEs to self-market their products overseas, Loxley provides the distribution
channels by leveraging on its existing network in China. To further tap into the vast Chinese
market, it plans to set up booths marketing Thai products in petrol stations in China by this year.
As such, Loxley is expected to sign a co-operative agreement with Sinopec to create a “Thai corner”
in the latter’s petrol stations in China. The booths will sell products from both Loxley and Thai
SMEs. As Sinopec has over 10,000 petrol stations located across four provinces and two cities in
China, we think the co-operation with Sinopec will widen Loxley’s distribution network in China.
Figure 12: Sinopec’s petrol stations network in Chin a
Source: Loxley
UNLOCKING VALUE VIA LISTING ITS SUBSIDIARY
Over the next five years, Loxley is likely to list some of its subsidiaries if they show attractive
enough profits. This is an incentive for the company to improve its cost-saving measures, or it may
have to raise more working capital to adequately partake in the array of opportunities available. We
do not rule out the possibility that the listing process might begin by end-FY13. Two of Loxley’s
subsidiaries, Loxley Wire Company (LWC) and LOXBIT, are the prime candidates for listing on the
SET.
Loxley Wireless Company
Loxley Wireless is a 99%-held subsidiary. We believe that this company is a prime candidate for
listing on the SET. Loxley actually has several potential candidates to be floating on the stock
market, and is likely to follow the same path as Samart in listing its business units are that deemed
practical in unlocking value for providing an additional catalyst for its share price.
LWC’s business is divided into three main areas:
i) Distribution of carrier-grade equipment by Huawei and Alcatel-Lucent as well as Aastra’s
enterprise product, e.g. PABX including installation and after-service.
2) Distribution of wireless transmission and networking hardware such as radio frequency repeaters
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and dead signal area antennas.
3) High speed data communications for the corporate world. This was a business that LOXLEY
retained when it sold off its holdings in what is now CS Loxinfo to Thaicom (THCOM). They also
install CCTVs and Virtual Private Networks (VPN).
LWC’s business is similar to Advanced Info Technology (AIT)’s except that AIT focuses on one
supplier, CISCO. AIT provides inroads into strong relationships with the public sector in exchange
for being the key partner for CISCO products in Thailand. Both companies focus primarily on
government-related customers such as the Communications Authority of Thailand (CAT) and the
Telephone Organisation of Thailand (TOT). LWC works, rather than competes, with AIT.
A key on-going project at this time is CAT’s submarine cable system to handle telecommunications
between land and oil rigs in the Gulf of Thailand, stretching 1,340 km and extending to Songkla in
the south of Thailand. The 3G project belonging to the ToT also falls under LWC’s purview.
LOXBIT – IT Specialist
LOXBIT is another prime candidate for a SET listing over the next 18months. The company is a
systems integrator dealing with consumer IT developments and machines for automated processes
such as electronic payments, ATM’s, cheque clearing and achieving systems (ICAS) and for risk
management for the Bank of Thailand. The company provides procurement, installation and long-
term maintenance services as part of its contract. Not surprisingly, it has the largest percentage to
sales for recurring revenues. It also authorizes the manufacturing of products.
Competition for LOXBIT is intense due to the rapid changes in technology and customer
requirements, including new and international standards. However, a positive is that progressive
regulatory rules mean new contracts for modification, for LOXBIT. One competitive advantage for
this company is that it can share the expertise of its pool of highly-experienced engineers and IT
consultants which a smaller company or pure distributor may not have.
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KEY INVESTMENT RISKS
Execution risks. Loxley, as a leading ICT player, will benefit from the massive investments being
pumped into the sector in Thailand as well as the region. While there are no concerns over its
ability to grow its backlog, its ability to turn its new backlog into earnings remains rather
questionable judging from its past track record. The historical gross profit margin for the company
had been decent at around 15%-18%. However, high selling and administrative expenses have
dragged down profitability. The same can also be said about its trading and services segments. As
such, we believe that the concerns over the company’s execution risks are rather valid.
Uncertainties over the online lottery project. The online lottery project was part of former
prime minister Thaksin Shinawatra’s policy to clamp down black market lotteries, legalizing it while
generating additional revenue for the government. Loxley’s JV company, LGT, was given the award
to roll out the installation of the online lottery back in 2006. Due political turmoil, the
implementation of online lottery has been delayed indefinitely. So far, LGT has invested around
THB1.5bn, with 6000 machines installed nationwide. While the current government plans to
proceed with the roll out of the online lottery, there are still uncertainties over the actual execution
given the politically-sensitive nature of the issue. While the company has set aside some provisions
in the event that the project gets scrapped, we think there is always a possibility that the
provisions are insufficient and it may need to inject additional funds into the investment. Even so,
the negative news flow in regard to the potential cancellation of the project will result in pessimistic
sentiment on the stock price.
Political risks. Given that most of Loxley’s ICT contracts are from the government and
government agencies, the contracts flows are highly dependent on the political stability whereby
any change in political leadership could hamper the progress in awarding these contracts. As such,
we think Loxley’s high dependency on government-related contracts expose the company to
political risks, and under a less-than-ideal situation, it might not being able to replenish its backlog
due to the delay in the implementation of government projects.
Heavy balance sheet and earnings dilution. Due to the company’s high borrowings, it incurred
a rather significant finance cost amounting to over THB230m in FY12. While its operating gross
profit margin was rather healthy and comparable to its peers, its high finance costs have been
eating into its bottomline over the last few years. We believe its highly-geared balance sheet leaves
the company limited room to gear up further, in the event it needs to raise capital. While the
proposed PO could provide additional capital for the company without having to increase its
borrowings, we think it is very important for the company to channel the proceeds into earnings-
accretive projects to minimize the impact of the earnings dilution from the enlarged share base.
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FORECAST & RECOMMENDATION
Decent top- and bottomline growth. We expect revenue to grow by about 28% y-o-y in FY13,
largely driven by the strong revenue recognition from its existing ICT & projects backlog as well as
from new contract wins. As such, the ICT & projects segment is set to remain its biggest revenue
contributor, bringing in over 70% of its total revenue. Loxley’s trading and service businesses
contribute less than 30% to its total revenue. We expect the gross margin for its core business to
improve slightly in FY13, with further improvements in FY14 onwards as the company achieves
greater economic of scales from the high backlog of its ICT business segment. Overall, we expect
net profit to grow at around 27% over the next few years, in line with revenue growth as well the
higher equity profit contributions from its JVs and associate companies. Conservatively, we have not
factored in contributions from its online lottery business in our forecast due to the uncertainties
surrounding the issue.
Initiate with TRADING BUY. We initiate coverage on Loxley with a Trading Buy call and a FV of
THB10.60, based on 3.6x FY13 P/BV. This is equivalent to a 10% discount to the average P/BV of
its peers AIT and SAMART. While Loxley is an integrated ICT contractor just like AIT and SAMART,
we think the discount is reasonable, taking into account its position as a diversified conglomerate
compared to its peers, who are pure ICT players. The discount also factors in its relatively lower
profitability compared to its peers. Nevertheless, as one of the leading ICT contractors, we think
Loxley is set to benefit from the sector’s favourable outlook, supported by the abundance of high-
potential opportunities available. However, the execution risk it faces in turning the high backlog
into profit remains a key concern.
Figure 3: Loxley’s P/BV trading band since 2003
Source: Bloomberg
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FINANCIAL
Profit & Loss (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Total turnover 10,413 14,248 14,279 18,303 20,765
Cost of sales (8,652) (12,087) (12,093) (15,530) (17,452)
Gross profit 1,761 2,160 2,185 2,773 3,313
Gen & admin expenses (1,749) (1,946) (2,016) (2,260) (2,542)
Other operating costs (181) (206)
Operating profit 12 214 169 332 565
Operating EBITDA 135 343 312 479 720
Depreciation of fixed assets (123) (128) (143) (147) (155)
Operating EBIT 12 214 169 332 565
Net income from investments 357 376 701 750 750
Interest expense (115) (158) (232) (240) (250)
Exceptional income - net (343) (12) - - -
Pre-tax profit (89) 420 638 842 1,065
Taxation (42) (115) (115) (168) (213)
Minority interests (8) (7) 3 (5) (5)
Profit after tax & minorities (139) 298 526 669 847
Total liabilities & equity 9,793 12,252 13,330 16,271 17,302
Source: Company data, RHBRI
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Change in working capital 1,425 (1,529) (1,865) (359) (583)
Other operating cashflow (1,063) 451 (74) 391 464
Operating cashflow 497 (734) (1,628) 511 601
Interest received 7 11 10 20 20
Interest paid (115) (158) (232) (240) (250)
Dividends received 348 364 374 375 375
Tax paid 3 (132) (106) (163) (211)
Cashflow from operations 739 (651) (1,582) 503 535
Other investing cashflow 97 119 154 270 236
Cashflow from investing activities 97 119 154 270 236
Dividends paid - (100) (150) (300) (381)
Proceeds from issue of shares - - - 1,155 -
Increase in debt (875) 1,643 1,453 - -
Other financing cashflow 544 (809) (247) 210 273
Cashflow from financing activities (331) 735 1,056 1,065 (108)
Cash at beginning of period 594 857 976 558 2,299
Total cash generated 506 203 (372) 1,838 663
Implied cash at end of period 1,099 1,060 604 2,397 2,962
Source: Company data, RHBRI
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THAILAND EQUITY Investment Research
Company Update
Toyo-Thai Corp Spreading Its Wings Abroad Toyo-Thai Corp (TTCL)’s fundamentals remain robust and it has won more projects than we have expected. Besides winning the highly-anticipated THB6.4bn desalination plant project in Qatar, it is expanding its footprint in Myanmar. In light of this, we believe that its overseas operation will be a major growth driver, potentially leading to a three-year earnings CAGR of 27% from 2013F to 2015F.
Management becoming more optimistic. TTCL’s management has become more optimistic on its outlook, revising its revenue targets for 2013, 2014 and 2015 upward by 7%, 11% and 25% respectively. These positive adjustments are likely due to two major factors:
i. Record-high backlog of THB25bn. As at end-Feb 2013, TTCL has THB25bn in its backlog, up from THB21.5bn at end-2012 and THB15bn at end-2011. About 50% of this THB25bn backlog will be realized this year, and account for 70% of our 2013F revenue estimates.
ii. Healthy number of proposals. TTCL is currently bidding for projects worth a total of THB85bn, of which it expects to win a-third, or around THB28bn. These projects are expected to be awarded throughout 2013.
Another big step in Myanmar. In November, TTCL was awarded the USD170m gas-fired power plant project by Myanmar’s Ministry of Electric Power. It signed another MOU with the ministry last week for a feasibility study on a 1,000MW ultra supercritical coal-fired power plant in the Thilawa Special Economic Zone, Yangon. The study should take about a year.
Upgrade to BUY, based on SOP valuation. Our original DCF approach failed to grasp TTCL’s growth potential and the likelihood of it being awarded projects beyond its proposals. Hence, we are changing our valuation and using a sum-of-parts (SOP) approach, which results in a TP of THB49.3, based on: i) a THB40.24 value for its operations (25x 2013 PE), ii) THB4.80 representing the value of its JVs and associates, and iii) THB4.28 representing its cash on hand.
Thailand Research Team 66 2862 9999 ext 2030
Buy Target THB49.3
Previous THB22.6
Price THB43.0
Engineering & Construction Toyo-Thai Corp constructs factories for the petrochemical, chemical and power industries. It specializes in Engineering, Procurement and Construction (EPC) work for turnkey projects. It also has subsidiaries and branches in Vietnam, Malaysia, Myanmar, USA, Singapore, Abu Dhabi, the Philippines and Qatar.
Price Close Relative to Stock Exchange of Thailand Index (RHS)
Source: Bloomberg
Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Total turnover (THBm) 5,259 8,896 11,358 18,000 21,504
Recurring net profit (THBm) 323 372 502 773 912
Recurring net profit growth 1.1% 15.0% 35.0% 53.9% 18.0%
Core EPS (THB) 0.67 0.77 1.05 1.61 1.90
Core EPS growth (15.7%) 15.0% 35.0% 53.9% 18.0%
Core P/E (x) 63.8 55.5 41.1 26.7 22.6
Return on average equity 23.2% 24.8% 29.6% 34.1% 32.8%
P/B (x) 13.5 12.4 10.2 8.2 6.8
EV/EBITDA (x) 40.3 23.1 23.2 15.4 12.6
Net debt to equity net cash net cash net cash net cash net cash
RHBRI vs consensus EPS
Source: Company data, RHBRI estimates
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FINANCIAL
Profit & Loss (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F
Total turnover 5,259 8,896 11,358 18,000 21,504
Cost of sales (4,402) (7,853) (10,083) (16,200) (19,354)
Gross profit 856 1,043 1,276 1,800 2,150
Gen & admin expenses (444) (577) (677) (907) (1,084)
Operating profit 412 466 598 893 1,067
Operating EBITDA 433 488 622 916 1,091
Depreciation of fixed assets (21) (22) (24) (23) (24)
Operating EBIT 412 466 598 893 1,067
Net income from investments (4) (1) (0) - -
Other recurring income 1 9 30 2 2
Interest income 39 54 71 71 71
Interest expense (0) (0) - - -
Exceptional income - net 19 36 61 - -
Pre-tax profit 468 564 760 966 1,140
Taxation (130) (160) (214) (193) (228)
Minority interests (1) (6) (0) - -
Profit after tax & minorities 337 397 546 773 912
Net income to ord equity 337 397 546 773 912
Recurring net profit 323 372 502 773 912 Source: Company data, RHBRI
Total liabilities & equity 3,675 6,904 7,615 11,245 13,383 Source: Company data, RHBRI
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Change in working capital (820) 1,928 (102) 884 467
Operating cashflow (387) 2,416 520 1,799 1,559
Interest received 41 55 74 71 71
Interest paid (0) (0) - - -
Tax paid (130) (160) (214) (193) (228)
Cashflow from operations (475) 2,310 380 1,677 1,401
Capex (50) (78) (814) (80) (80)
Other new investments (100) (433) (457) - -
Other investing cashflow (35) 2 201 - -
Cashflow from investing activities (185) (509) (1,070) (80) (80)
Dividends paid (166) (192) (216) (273) (386)
Increase in debt (0) (0) - - -
Other financing cashflow 0 (0) 521 - -
Cashflow from financing activities (166) (192) 305 (273) (386)
Cash at beginning of period 1,658 832 2,441 2,056 3,385
Total cash generated (825) 1,610 (385) 1,324 935
Implied cash at end of period 832 2,442 2,056 3,380 4,320 Source: Company data, RHBRI
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BETTER PROSPECTS FROM RECORD-HIGH BACKLOG AND PROPOSALS
Raising revenue targets. Management revised its 2013, 2014 and 2015 revenue targets up by 7%, 11% and 25% respectively, prompting us to fine-tune our projections for 2013F-2015F. Our 2013F projected revenue of THB18bn is 70%-secured through the backlog to be realized this year. In addition, our 2014-2015 forecasts are calculated based on: i) TTCL’s internal revenue targets, and ii) a 7.5% premium over these targets since the company has, on average, beaten its own annual target by 7.5% over the last three years.
Figure 1: TTCL’s targets, RHB-OSK’s forecasts and actual revenue
Backlog at all-time high. As of end-Feb 2013, TTCL has THB25bn in its backlog on hand, up from THB21.5bn at end-2012 and THB15bn at end-2011. Of the total THB25bn backlog, around 50% will be realized as the consolidated top line this year. Some 83% of its backlog consists of overseas projects – i.e. in Qatar, Myanmar, Vietnam and Malaysia – reflecting TTCL’s successful shift from the domestic to foreign markets.
Figure 2: Backlog trend
Unit: THBm 2008 2009 2010 2011 2012 2M13
Backlog 11,230 5,904 5,780 15,010 21,500 24,800
Source: RHBRI, TTCL
Figure 3: Backlog by industry Figure 4: Backlog by location
Source : RHBRI, TTCL
Source : RHBRI, TTCL
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Robust number of proposals. TTCL is currently bidding for projects worth a total of THB85bn, of which it expects to win one-third, or around THB28bn. The majority of these projects are power projects totaling 220MW – such as independent power producer (IPP), small power producer (SPP) and renewable projects – which are expected to be awarded throughout 2013.
Figure 5: Potential proposals by industry
Figure 6: Potential proposals by location
Source: RHBRI, TTCL
Source : RHBRI, TTCL
MYANMAR OFFERS PLENTY OF ROOM FOR TTCL TO GROW
Gas-fired 100MW power plant in Myanmar. On 19 Nov 2012, TTCL officially declared that it had signed a memorandum of agreement (MOA) with the Ministry of Electric Power (MOEP) in Myanmar. In conjunction with this, its Singaporean subsidiary would jointly invest and develop a 100MW Power Plant in Ahlone, Yangong. The first-phase power generation could begin in 2Q13, and the construction of the entire plant is slated for completion in 3Q14.
Engineering, Procurement and Construction (EPC). The total investment for this gas-fired power plant is expected to be around USD170m, or THB4.9bn. TTCL is the main EPC contractor for this project.
Investment. Of the USD170m outlay, USD50m is expected to come from its equity investments, while the rest will be financed through borrowings from commercial and sovereign banks. TTCL and the group will contribute around 60% of the total equity, with the remainder to be financed through a Singaporean financial institution.
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Figure 7: Timeline for the gas-fired 100MW power plant in Myanmar
Aug 2012 Signing MOU with the Ministry of Electric Power of Myammar
Nov 2012 i) Signing MOA
ii) EPC work starts
July 2013 Completes Phase I
- simple cycle [30MW - 40MW]
3Q13 Completes Phase II
- simple cycle [30MW - 40MW]
3Q14 Completes Phase III
- combined cycle [100MW - 120MW]
Source: RHBRI, TTCL
Figure 8: Major projects to be realized in 2013
Awarded in 4Q12
Nov Type of Project Gas-Fired 100MW Power Plant
Project Owner Ministry of Electric Power, TTCL & Toyo Thai Power Corporation
Contractor(s) TTCL
Project Value USD170m or THB4.9bn
Scope of Work Engineering, Procurement and Construction (EPC)
Location Ahlone, Yangong, Myanmar
Period Nov 2012 - 3Q14
Awarded in 2013
JAN Type of Project Desalination plant Project Owner Qatar Electricity & Water Company Contractor(s) Mitsubishi Corporation and TTCL Project Value Approx. USD210m or THB6.4bn Scope of Work EPC Location Ras Abu Fontas, Qatar Period Jan 2013 - June 2015
FEB Type of Project Chemical Plant
Project Owner Undisclosed
Contractor(s) TTCL and its consortium member
Project Value THB1.8bn - THB2.1bn
Scope of Work EPC
Location Thailand Period 26 Months
Source: RHBRI, TTCL
Feasibility study on coal-fired 1,000MW power plant. Last week, TTCL signed an MOU with Myanmar’s MOEP to enhance the collaboration between the two parties to conduct a preliminary survey and feasibility study on the development of a 1,000MW ultra supercritical coal-fired power plant in the Thilawa Special Economic Zone, Yangon. Upon completion of the said study, which is expected to take about a year, TTCL is expected to be awarded at least a portion of the plant’s construction and participate in the plant’s investment. The investment cost of this project is approximately USD1.5bn.
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MAJOR PERFORMANCE DRIVERS BY PROJECTS 2012 recap. TTCL generated THB11.4bn in revenue from construction last year, up 28% y-o-y. The increase in sales was driven by projects awarded in 2011-2012. Major projects, which accounted for around 60% of revenue, included: i) the Rung Tawan project (THB2.5bn), ii) the LampsUp-MY project (THB1.9bn), iii) Chiyoda’s petrochemical plant (THB1.4bn), and iv) the Nava Nakorn Electric (NNE) power plant project (THB0.9bn). Consequently, TTCL’s operating EBIT rose 28% y-o-y to THB598m. 2013 performance drivers. Major projects in the backlog to be realized this year include: i) a desalination plant in Qatar (THB6.4bn), ii) a gas-fired 100MW power plant in Myanmar (USD170m, or THB4.9bn), and iii) a chemical plant in Thailand (THB1.8bn–THB2.1bn). However, revenue realization for the Myanmar plant would only show up in TTCL’s separate income statement, as it is partly owned by its subsidiary. VALUATION Significant investments. Currently, TTCL has two significant investments on hand, including: i) a 40.95% stake in Nava Nakorn Electricity (NNE), and ii) a 25% stake in Siam Solar Power (SSP). We derive a value per share of THB0.13 for SSP, based on its investment costs, and a value per share of THB1.55a for NNE based on a 10.45% fixed dividend and discount rate of 9%. By 3Q14, TTCL will be fully-invested in the gas-fired 100MW power plant project, which should be worth around THB1.5bn, or THB3.1 per share based on an equity IRR of 15% and a discount rate of 9%. Figure 9: Investments included in the valuation
Navanakorn Electricity (NNE) THBm THB per share
Preferred shares (stake = 40.95%) 643
NPV + Initial Outlay 746.0 1.55
Siam Solar Power (SSP) THBm THB per share
Closing BV (stake = 25.00%) 61 0.13
100MW Power Plant in Myanmar THBm THB per share
Investment (TTCL's portion) 899
NPV + Initial Outlay 1498 3.1
TOTAL 4.80
Source: RHBRI, TTCL
More power plant investments in the cards. In an effort to increase its recurring income, TTCL is seeking to invest more into power plants via Toyo Thai Power Holdings. The USD1.5bn coal-fired power plant in Myanmar could potentially be its next target for investment.
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Upgrade to BUY. Our earlier DCF valuation failed to grasp TTCL’s potential growth as our assumption was mainly based on a 33% success rate and potential proposals of around THB80bn–THB83bn. It should be noted, however, that TTCL had sometimes been awarded projects out of its declared biddings. For example, it was directly awarded the THB4.9bn 100MW gas-fired power plant from the Myanmar government, without having to go through any bidding process. Therefore, we decided to change our valuation method to the SOP approach, resulting in a TP of THB49.3, based on: i) THB40.24 for the value of its operations (25x 2013 PE), ii) THB4.80 for its JVs and associates, and iii) THB4.28 to reflect the value of its cash on hand.
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RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
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