A turnaround big cap stock.

Kindly Note:I wrote the below article on April 24, while making rounds in Bangkok last week. Despite repeated trials, all day and night, I could not upload this ITD (28.5) article for you due to no service. The internet lines in BKK were terrible just at this time. An upload to the web site takes more time and stable lines then just sending out a few e-mails. This brownout resulted in a costly time delay but below 30, I still rate these shares a "buy".

ITALIAN THAI DEVELOPEMENT ITD (27) A LEADING CONTRACTOR WITH A SOLID TURNAROUND STORY.

I just reviewed the very latest broker buy opinions on ITD stock and must say I am now convinced as well, that this large cap stock, listed in the property sector, looks like a solid buy to me.

ITD is Stecon’s largest competitor and by far the largest construction/infrastructure company in Thailand. Previously ITD was not interesting, as this firm was sattled with debt. Restructuring proved long and painful for years. But it looks like this has happened now.

Because some smaller Bond holders where not willing to take the final haircut, ITD could not conclude this process previously. With this final burden now nearly out of its way, ITD is on the way, in the same price direction Stecon was a few months ago.

Indeed, I now think ITD has some catching up to do with Stecon’s stock price. At a similar current p/e to Stecon, ITD should trade around 36. 

ITD is expected to complete its debt restructuring process and get out of the Bangkok Central Bankruptcy Court by this coming August. Although the news disclosed that objections from some creditors remained, many now strongly believe that ITD’s debt restructuring will finally go through as the plan was approved by the Central Bankruptcy Court on April 4th and was approved by 80% of the creditors.

This restructuring will indeed improve ITD’s financial health tremendously.

Given that ITD has a leading position and vast proven track record, the firm will be the prime beneficiary once the local construction industry recovers.

Its backlog of Bt50 Billion Baht is enough to generate more than three years of healthy income, suggesting that ITD is well protected against any downturn.

While at first rather skeptical, I now as well, see this restructuring plan as very positive for ITD.

ITD has an undemanding current valuation because this year is a recovery year and next year should prove to be much better. Credible local brokerage reports tentative normalized EPS forecast for 2002 at Bt3.20, suggesting that ITD is currently trading at a fairly cheap of p/e of less then 9. Undemanding for such a power house and absolute leader in its industry and share liquidity. Institutions will learn to love ITD as it a highly liquid stock and so should command a premium p/e to its sector.

Other encouraging news is that the company plans to use its legal reserve and share premium to wipe out its retained loss in 2Q02, giving the way for ITD to pay a possible dividend next year.

This company’s financial status will now be considerably improved, with net debt to equity falling to 0.5x and interest expenses declining from around Bt1.2bn a year to only Bt150mn.

I myself would rate these shares a "strong buy" below 28. Like Stecon, you want to own this sort of company, early in a business up cycle. And that is where we are in Thailand. These are just my own views and opinions.

Very Best Regards

Paul Renaud.