TO ALL: JEFFRIES REPORT dated 1/14/98....hope this is helpful
Shaw Receives Two Power Projects In China Valued At $20 Million
We maintain our Buy rating on The Shaw Group, Inc. (SGR) with a twelve-month price target of $36 per share based on 14x fiscal 1999 (August) EPS. We believe Shaw remains undervalued trading at 7.4x 1999E EPS based on expected earnings growth of 53% in fiscal 1998 and 38% in fiscal 1999. We believe Shaw will continue to benefit from strong demand in both domestic and international process and power markets.
" SGR has declined 29% from a recent high of $26 3/8 on December 4 to $18 _ currently. We believe the stock has been oversold due to perceived exposure to the Asian flu. However, we maintain our EPS estimates of $1.85 for fiscal (August) 1998 and $2.55 for fiscal 1999. Key drivers of the projected earnings growth include a record backlog, contribution from the large Reliance refinery project in India, and the recent accretive acquisition of Prospect Industries.
" Shaw was awarded two power projects in China totaling approximately $20 million. The contracts call for the engineering, design and fabrication of critical piping systems and supports for eight 350 MW coal-fired units in China. Other recent awards to Shaw in the Asia Pacific include critical and low-pressure piping for a 1,000
MW combined-cycle power plant in Taiwan and the non-nuclear piping for the Lingao I & II nuclear power plants in China.
" As reported previously, Shaw expects to sign a definitive agreement with the China Baoyuan Industry and Trade Company, a wholly-owned subsidiary of the government-controlled China National Nuclear Corporation (CNNC), by April 1998 to establish joint venture ownership of a pipe fabrication facility in China. The facility is scheduled to be fully operational by August 1998 and is expected to add $0.10-$0.15 per share to annual earnings.
" We believe these contracts are an indicator of the strong outlook for the power piping market in China, one of
the largest power markets in the world. According to the Chinese Government's "Ninth Five Year Plan", China plans to raise its nuclear power generation capacity by 20,000-25,000 MW by the year 2010 and by 40,000-50,000 MW by the year 2020. This increase represents an additional 1,500-2,500 MW per year. Shaw currently has bids outstanding on four nuclear plants in China representing 3,370 MW of capacity.
" The majority of Shaw's exposure to the Asia Pacific power market is in China, with the Southeast Asian countries affected by the currency crisis (Indonesia, Malaysia, Thailand, Philippines and Korea) representing only 4% of activity. China has not experienced the currency devaluation that other Southeast Asian nations
have. Most experts believe that China's large foreign currency reserves of $140 billion, which is second only to Japan, will allow the country to defend its currency against devaluation, and thus help China maintain its strong economic growth in 1998. Assuming China's power demand remains robust, we expect SGR's results to be
minimally impacted by the Asian flu. |
