STI: Acquisition Benefits Are Not Fully Priced In, Strong BUY

We have a BUY recommendation on STI based on our target of Bt10.10, implying an upside of 31% from the current share price. With the consolidation of AEC, we change our valuation method from sum-of the-parts to a DCF-based valuation and use a WACC of 6.8% and a terminal growth rate of 3%. We apply a 15% small-cap discount.

Investment thesis:

• Recent acquisition gives access to government infrastructure projects
• Major shareholder as a key strategic partner for deal flow
• Backlog ensures strong near-term growth and revenue stability

Interim: Large-scale projects and the successful integration of AEC have driven strong 2Q20 results. We still believe that the market does not consider the benefits of the acquisition to the full extent, providing high upside potential.

Risks: Reliance on limited industries, delay in project completion, shortage of experienced personnel, and adverse regulatory changes.