Bangkok--25 Jul--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of Sino-Thai Engineering & Construction PLC (STECON) at “BBB+” with “stable” outlook. The rating reflects STECON’s strong market position in the public construction market, strong backlog, its specialization in power plant and industrial plant construction, and a healthy balance sheet. The rating also takes into consideration the company’s squeezed margin that is the result of increasing construction material costs, the cyclical nature of the engineering and construction (E&C) industry, and uncertain public construction investment.
The “stable” outlook reflects the expectation that STECON will maintain its competitive
position in public works construction. More power plant construction works, which generate high margin, are expected to partly alleviate margin pressure from public works. With a backlog of more than Bt30,000 million, the company is expected to bid more selectively for new contracts and focus on controlling major operating costs.
TRIS Rating reported that STECON is one of the top three construction contractors in Thailand, with a strong market position in public works construction. The company is ranked as a class 1 licensed contractor for all government authorities and state enterprises. In addition to public works, the company is specialized in power plant and petrochemical plant construction. Since 2004, STECON has been awarded six power plant contracts worth Bt12,199 million. Approximately 69% of the company’s construction revenue in 2005 was generated from public projects. Though new construction projects from both the public and private sectors in Thailand are expected to slow down, STECON has less pressure in taking orders. The company’s backlog as of March 2006 was worth Bt35,549 million,
almost three times 2005 turnover.
TRIS Rating said, STECON’s financial position in 2005 improved from the previous year. Adjusted operating margin rebounded from 3.36% in 2004 to 5.98% in 2005. Funds from operations (FFO) to total debt increased to 28.01%. However the debt to capitalization ratio weakened to 38.71% as debt increased by Bt1,323 million, mainly as a result of the financing of capital investments and working capital. Nonetheless, the ratio improved to 26.64% in the first quarter of 2006 as a result of a Bt1,885 million capital increase.
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