It is quite an interesting thing to anticipate on the case that Sino-Thai Engineering and Construction PCL (STEC) had invested THB 4.32 billion to take over Mo Chit Land Company Limited from U City Public Company Limited (U).
This take over reflects the possibility of directorial change in STEC’s business from contractor to project developer. All of this is to create a recurring income.
STEC works in construction and engineering businesses. Mostly, the company will focus on projects about public utilities, which is why there will be no recurring income if there are no new projects.
Moreover, in the future time of 4-5 years, if all of the elevated railway projects have been done, the company’s income might drop dramatically.
In this case, they might have to deal and do business with real estate companies for housing construction, however, the majority of real estate companies have their own construction company to work with their housing projects. So, it might not be worth the investment.
This is a serious problem that forces STEC to restructure the business model.
Upon reviewing the financial statement of STEC in the last 4 years, it appears that the statements were quite fluctuated. In 2015, the net profit showed THB 1,526.52 million from the total net income of THB 18,927.11 million. In 2016, the net profit was THB 1,380.75 million from the total net income of THB 18,649.81 million. In 2017, the company recorded a net loss of THB 610.83 million from the total net income of THB 21,190.58 million due to the delayed of setting aside loss provision of the Government project. In 2018, the company earned the profit of THB 1,616.86 million from the total net income of THB 20,000.91 million.
These days the business model and projects of STEC has been changed. The company cooperated with BTS Group Holdings Public Company Limited (BTS) which emphasized on investment more than construction, especially projects of Sky train construction: Yellow line and Pink line and the U-Tapao and Eastern Airport City project which is in the bidding process.
The cooperation with BTS and the coming project shows that STEC is not only looking for construction projects but it also shows that the company could be a developer.
The great emphasis on this point is when STEC decided to buy and invest THB 7,790 million in Mo Chit Land Company Limited which is the owner of Mo Chit Complex Project. The project operates 36 levels and 3 levels of underground office twin building rental connected with BTS Mo Chit station. This might be the significant change for STEC’s business model.
The analyst estimated aside from the monthly office rental payment of the project, this will be an opportunity for STEC to acquire the project and earn approximately THB 6,000-7,000 million which the duration of this project is around 3 years and it might be an opportunity for increasing its value in the long term, if STEC decides to sell its shares in the future.
Moreover, the analyst also estimated the investment on this project will add a value for STEC’s share by THB 1.12/share, so, recommends to buy with the target price at THB 28, this makes the price of STEC continuously increase.
As this result makes the investors believe in STEC’s plan to make a recurring income which will help stabilize its profit in the future, including the factor of political support which makes STEC stock rally.
Who is going for a buy, who is going for a sell, a speculation or even a long-term investment…..suit yourself.