Kiatnakin Phatra Securities (KKPS) has initiated coverage on STECON with a “Buy” rating and a price objective of Bt10.80. This recommendation is based on an anticipated operational turnaround from a core loss of Bt1.3 billion in 2024 to a projected core profit of Bt695 million in 2025, with an expected growth rate of 19% in 2026.
KKPS noted that STECON’s growth backlog, coupled with a robust balance sheet, underpins this positive outlook. The derived PO is an average of the Discounted Cash Flow (DCF) method.
Continued Growth Cycle Anticipated
The STECON growth cycle backlog is expected to continue through 2025-26, driving a resumption in construction revenue growth following a temporary slow down in 2023-24. New contracts are forecast to boost backlog growth by 16% in 2025 and 13% by year-end 2026. The government’s increased spending, evidenced by a CAPEX disbursement, supports this outlook. STECON’s long standing expertise in private construction creates a competitive edge, further strengthened by its low net gearing ratio of 0.25x as of year-end 2024.
Completion of Project Cleanup
In 2024, STECON addressed four underperforming projects with a total provision of Bt3.9 billion. These include the Nong Bon project, costs for safety measures in the MRT Yellow and Pink lines, Thai Oil’s Clean Fuel Project, and asset impairment issues. Construction gross profit margins are projected to rebound to 6.6% in 2025, aligning with their historical normalized margin range of 4.2% – 10.1% from 2014-24.
Valuation De-rating and Recovery Potential
STECON has experienced a de-rated valuation since 2020 due to project delays during lockdowns and a rise in construction material costs, leading to a declining Return on Equity (ROE) from 12% in 2019 to an average of 1.2% over 2020-24. However, the forecast earnings turnaround could catalyze ROE recovery, with conservative estimates of 4% in 2025 and 5% in 2026. Additionally, capital reduction from share repurchases is expected to assist in improving ROE.
Upside and Downside Risks
Potential earnings upsides include an insurance claim for the Nong Bon project with a Bt479 million provision in 2024 and the cessation of loss-sharing from investments in Eastern Bangkok Monorail Co., Ltd. and Northern Bangkok Monorail Co., Ltd., which incurred a Bt548 million loss for STECON in 2024.
Conversely, risks include Thailand’s political dynamics, potential hikes in construction material costs with steel and concrete accounting for 41% and 37% of the estimated construction cost respectively, and increases in minimum wage costs which currently represent 12-15% of the total cost.
The share price settled at THB 7.05 per share, representing a gain of 13.71% despite a market downturn on Thursday after the U.S. President Donald Trump announced sweeping tariffs measures on global nations.
