Loxley - OSK
Loxley - OSK
Loxley - OSK
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RHB Research<br />
FORECAST & RECOMMENDATION<br />
Decent top- and bottomline growth. We expect revenue to grow by about 28% y-o-y in FY13,<br />
largely driven by the strong revenue recognition from its existing ICT & projects backlog as well as<br />
from new contract wins. As such, the ICT & projects segment is set to remain its biggest revenue<br />
contributor, bringing in over 70% of its total revenue. <strong>Loxley</strong>’s trading and service businesses<br />
contribute less than 30% to its total revenue. We expect the gross margin for its core business to<br />
improve slightly in FY13, with further improvements in FY14 onwards as the company achieves<br />
greater economic of scales from the high backlog of its ICT business segment. Overall, we expect<br />
net profit to grow at around 27% over the next few years, in line with revenue growth as well the<br />
higher equity profit contributions from its JVs and associate companies. Conservatively, we have not<br />
factored in contributions from its online lottery business in our forecast due to the uncertainties<br />
surrounding the issue.<br />
Initiate with TRADING BUY. We initiate coverage on <strong>Loxley</strong> with a Trading Buy call and a FV of<br />
THB10.60, based on 3.6x FY13 P/BV. This is equivalent to a 10% discount to the average P/BV of<br />
its peers AIT and SAMART. While <strong>Loxley</strong> is an integrated ICT contractor just like AIT and SAMART,<br />
we think the discount is reasonable, taking into account its position as a diversified conglomerate<br />
compared to its peers, who are pure ICT players. The discount also factors in its relatively lower<br />
profitability compared to its peers. Nevertheless, as one of the leading ICT contractors, we think<br />
<strong>Loxley</strong> is set to benefit from the sector’s favourable outlook, supported by the abundance of highpotential<br />
opportunities available. However, the execution risk it faces in turning the high backlog<br />
into profit remains a key concern.<br />
Figure 3: <strong>Loxley</strong>’s P/BV trading band since 2003<br />
Source: Bloomberg<br />
RHB Research | See important disclosures at the end of this report<br />
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