STI: Acquisition Synergies Should Lead to Further Upside

We maintain our BUY recommendation on STI based on a target of Bt9.20 (previously Bt10.10), implying an upside of 34% from the current share price. We derive our target price from a DCF-based valuation using a WACC of 6.4% 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: Like 2Q20, 3Q20 growth was largely due to the consolidation of AEC. Revenue was up by 162% YoY and 22% QoQ. Overall, the results confirm our expectations that the AEC acquisition is value accretive and provides high upside potential.

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