Loxley - OSK

RHB Research 27 Mar 2013 

THAILAND EQUITY 

Investment Research 

Daily 

Thailand Research 

66 2862 9755 

Initiating Coverage 

Loxley 

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 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 

8.6 

7.6 

Price Close 

Relative to Stock Exchange of Thailand Index (RHS) 

199 

179 

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. 

6.6 

159 

5.6 

139 

4.6 

119 

Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F 

3.6 

99 

Total turnover (THBm) 10,413 14,248 14,279 18,303 20,765 

2.6 

26-Mar-12 

25-May-12 

26-Jul-12 

Source: Bloomberg 

26-Sep-12 

27-Nov-12 

28-Jan-13 

79 

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 

RHB Research | See important disclosures at the end of this report 

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1 

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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 structure 





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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 under 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 


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, prepainted 

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. 




5 



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 


Figure 5: Historical breakdown of revenue by segment since 2008 


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. 




6 



Figure 6: Total and equity profit from Loxley’s JV and associate companies in FY12 


Figure 7: Equity profit structure from Loxley’s JV and associate companies in FY12 


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 FY12 





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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 


Figure 10: Strong ICT backlog with plenty of room to grow 





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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 China 


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 




10 



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 longterm 

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. 




11 



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 earningsaccretive 

projects to minimize the impact of the earnings dilution from the enlarged share base. 




12 


RHB Research 

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 highpotential 

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 





13

RHB Research 

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 

Net income to ord equity (139) 298 526 669 847 

Recurring net profit 367 307 526 669 847 

Source: Company data, RHBRI 

Balance Sheet (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F 

Total cash and equivalents 869 983 560 2,301 2,127 

Inventories 665 1,316 1,233 1,504 1,706 

Accounts receivable 2,332 2,208 1,885 2,356 2,632 

Other current assets 1,106 2,726 4,196 4,510 5,064 

Total current assets 4,973 7,233 7,874 10,671 11,530 

Total investments 3,563 3,572 3,974 4,045 4,145 

Tangible fixed assets 975 1,066 1,121 1,177 1,236 

Intangible assets 36 45 57 58 58 

Total other assets 247 336 303 320 333 

Total non-current assets 4,820 5,019 5,456 5,600 5,772 

Total assets 9,793 12,252 13,330 16,271 17,302 

Short-term debt 1,117 1,956 3,214 3,300 3,400 

Accounts payable 1,796 2,827 2,001 2,573 2,919 

Other current liabilities 1,988 1,610 1,785 1,991 2,195 

Total current liabilities 4,901 6,393 7,000 7,864 8,515 

Total long-term debt 324 1,129 1,323 1,386 1,428 

Other liabilities 433 475 505 549 594 

Total non-current liabilities 757 1,604 1,829 1,935 2,022 

Total liabilities 5,658 7,996 8,828 9,799 10,537 

Share capital 2,000 2,000 2,000 2,265 2,265 

Retained earnings reserve 366 551 905 1,173 1,511 

Other reserves 1,554 1,496 1,395 2,833 2,786 

Shareholders' equity 3,920 4,047 4,300 6,270 6,563 

Minority interests 215 209 202 202 202 

Other equity - (0) (0) (0) (0) 

Total equity 4,135 4,256 4,502 6,472 6,765 

Total liabilities & equity 9,793 12,252 13,330 16,271 17,302 





14

RHB Research 

Cashflow (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F 

Operating profit 12 214 169 332 565 

Depreciation & amortisation 123 128 143 147 155 

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 





15

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 

Not Rated: Stock is not within regular research coverage 

Disclosure & Disclaimer 

All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any 

representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be 

construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or 

otherwise. This report is general in nature and has been prepared for information purposes only. It is intended for circulation to the 

clients of RHB and its related companies. Any recommendation contained in this report does not have regard to the specific 

investment objectives, financial situation and the particular needs of any specific addressee. This report is for the information of 

addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal 

or financial advice to independently evaluate the particular investments and strategies. 

RHB, its affiliates and related companies, their respective directors, associates, connected parties and/or employees may own or 

have positions in securities of the company(ies) covered in this research report or any securities related thereto, and may from 

time to time add to, or dispose off, or may be materially interested in any such securities. Further, RHB, its affiliates and related 

companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as 

market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them or buy them from 

customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwriting 

services for or relating to such company(ies), as well as solicit such investment, advisory or other services from any entity 

mentioned in this research report. 

RHB and its employees and/or agents do not accept any liability, be it directly, indirectly or consequential losses, loss of profits or 

damages that may arise from any reliance based on this report or further communication given in relation to this report. 

The term “RHB” shall denote where applicable, the relevant entity distributing the report in the particular jurisdiction mentioned 

specifically herein below and shall refer to RHB Research Institute Sdn Bhd, its holding company, affiliates, subsidiaries and related 

companies. 

All Rights Reserved. This report is for the use of intended recipients only and may not be reproduced, distributed or published for 

any purpose without prior consent of RHB and RHB accepts no liability whatsoever for the actions of third parties in this respect. 

Malaysia 

This report is published and distributed in Malaysia by RHB Research Institute Sdn Bhd (233327-M), Level 11, Tower One, RHB 

Centre, Jalan Tun Razak, 50400 Kuala Lumpur, a wholly-owned subsidiary of RHB Investment Bank Berhad (RHBIB), which in turn 

is a wholly-owned subsidiary of RHB Capital Berhad. 

As of 25 Mar 2013, RHBIB does not have proprietary positions in the subject companies, except for: 

a) - 

As of 25 Mar 2013, none of the analysts who covered the stock in this report has an interest in the subject companies covered in 

this report, except for: 

a) - 

Singapore 

This report is published and distributed in Singapore by DMG & Partners Research Pte Ltd (Reg. No. 200808705N), a wholly-owned 

subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad, Malaysia (“OSKIB”) and 

Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of 

the Singapore Exchange Securities Trading Limited and is a subsidiary of OSKIB, which in turn is a wholly-owned subsidiary of RHB 

Capital Berhad. DMG & Partners Securities Pte Ltd may have received compensation from the company covered in this report for its 

corporate finance or its dealing activities; this report is therefore classified as a non-independent report. 

As of 25 Mar 2013, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd do not have 

proprietary positions in the subject companies, except for: 

a) - 

As of 25 Mar 2013, none of the analysts who covered the stock in this report has an interest in the subject companies covered in 

this report, except for: 

a) - 




16

Special Distribution by RHB 

Where the research report is produced by an RHB entity (excluding DMG & Partners Research Pte Ltd) and distributed in Singapore, 

it is only distributed to "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and 

Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "Accredited Investor", this 

research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters 

arising from, or in connection with this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd. 

Hong Kong 

This report is published and distributed in Hong Kong by OSK Securities Hong Kong Limited (“OSKSHK”), a subsidiary of OSK 

Investment Bank Berhad, Malaysia (“OSKIB”), which in turn is a wholly-owned subsidiary of RHB Capital Berhad. 

OSKSHK, OSKIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the 

subject company. OSKSHK, OSKIB and/or other affiliates may, within the past 12 months, have received compensation and/or 

within the next 3 months seek to obtain compensation for investment banking services from the subject company. 

Risk Disclosure Statements 

The prices of securities fluctuate, sometimes dramatically. The price of a security may move up or down, and may become 

valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling securities. Past 

performance is not a guide to future performance. OSKSHK does not maintain a predetermined schedule for publication of research 

and will not necessarily update this report 

Indonesia 

This report is published and distributed in Indonesia by PT OSK Nusadana Securities Indonesia, a subsidiary of OSK Investment 

Bank Berhad, Malaysia, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. 

Thailand 

This report is published and distributed in Thailand by OSK Securities (Thailand) PCL, a subsidiary of OSK Investment Bank Berhad, 

Malaysia, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. 

Other Jurisdictions 

In any other jurisdictions, this report is intended to be distributed to qualified, accredited and professional investors, in compliance 

with the law and regulations of the jurisdictions. 

Kuala Lumpur Hong Kong Singapore 

Malaysia Research Office 

RHB Research Institute Sdn Bhd 

Level 11, Tower One, RHB Centre 

Jalan Tun Razak 

Kuala Lumpur 

Malaysia 

Tel : +(60) 3 9280 2185 

Fax : +(60) 3 9284 8693 

OSK Securities 

Hong Kong Ltd. 

12 th Floor 

World-Wide House 

19 Des Voeux Road 

Central, Hong Kong 

Tel : +(852) 2525 1118 

Fax : +(852) 2810 0908 

DMG & Partners 

Securities Pte. Ltd. 

10 Collyer Quay 

#09-08 Ocean Financial Centre 

Singapore 049315 

Tel : +(65) 6533 1818 

Fax : +(65) 6532 6211 

Jakarta Shanghai Phnom Penh 

PT OSK Nusadana 

Securities Indonesia 

Plaza CIMB Niaga 

14th Floor 

Jl. Jend. Sudirman Kav.25 

Jakarta Selatan 12920, Indonesia 

Tel : +(6221) 2598 6888 

Fax : +(6221) 2598 6777 

OSK (China) Investment 

Advisory Co. Ltd. 

Suite 4005, CITIC Square 

1168 Nanjing West Road 

Shanghai 20041 

China 

Tel : +(8621) 6288 9611 

Fax : +(8621) 6288 9633 

Bangkok 

OSK Securities (Thailand) PCL 

10th Floor ,Sathorn Square Office Tower 

98, North Sathorn Road,Silom 

Bangrak, Bangkok 10500 

Thailand 

Tel: +(66) 862 9999 

Fax : +(66) 108 0999 

OSK Indochina Securities Limited 

No. 1-3, Street 271 

Sangkat Toeuk Thla, Khan Sen Sok 

Phnom Penh 

Cambodia 

Tel: +(855) 23 969 161 

Fax: +(855) 23 969 171 




17

Loxley - OSK

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