Italian-Thai Development (ITD) - TRADIN

Sector: Contractor
Sector Rating: Overweight
Current Rating TRADING
Previous Rating TRADING
‘08 Fair Value Bt9.80
Market Price Bt9.00
Consensus Bt9.16

4Q07 normalized profit Bt256mn (+12% QoQ, +88% YoY). ITD’s 4Q07 net profit of Bt117mn marks a major turnaround from a loss of Bt725mn in 4Q06, but is a decline of 11% QoQ partly because of extra items. Excluding net provisions of Bt48mn, a forex loss of Bt88mn and investment gain of Bt3mn, normalized profit was Bt256mn, up 12% QoQ and a surge of 88% YoY that came on revenue growth of 10% QoQ and 1% YoY and a sustainable gross margin of 6.6% despite a rise in construction costs. The company’s profit outperformed other contractors, which posted either losses or sharp drops in profit.

2007 normalized profit surged 558% YoY. ITD posted a 2007 net profit of Bt1.01bn, which turned from a huge loss of Bt2.15bn in 2006 that was due to provisions set aside for cost overruns for a dam project in Laos. Normalized profit totaled Bt1.2bn, a strong rise of 558% YoY on revenue growth of 15% YoY and a widening gross margin to 7% from 5.1% in 2006.

Our top contractor play, revising up fair value. We are maintaining our positive that ITD’s 2008 earnings will be the strongest among its contractor peers owing to its ability to grow its backlog despite the sluggish construction industry. For 2009, the company will benefit the most from government mega projects, and thus the stock remains our top pick in the sector. However, as information regarding the company’s business plan is not yet available, we recommend only “Trading.” However, we are raising our 2008 P/E assumption for ITD from 25x to 30x to reflect an earnings boost from mega projects, which results in our fair value rising from Bt7.00 to Bt9.80.