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Contractors prepare for good times

Mega-projects expected to boost growth this year and next Thailand's leading construction contractors expect to gain an increased share of work from the government's new Bt500-billion mega-projects, especially the new rapid-transit systems, and this will drive their revenue growth this year and in 2010. Italian-Thai Development's president Premchai Karnasuta said his company expected to pick up about 40 per cent of the work in constructing the new rail routes. Bidding will open this year for contracts worth nearly Bt100 billion - the first part of the total Bt500-billion cost of the mega-projects to be built over the next five years. Italian-Thai is expecting new construction contracts worth Bt200 billion this year, and part of this will come from the mega-projects, especially the new rail routes, he said. At present, the company has won the bidding and signed contracts for projects worth Bt50.7 billion. It has offered what it claims are the lowest bids for further projects worth Bt101.2 billion, and expects to sign contracts for these later this year. It is also involved in the bidding process for yet more projects worth Bt110.2 billion. "We expect to win more than a half of the [projects valued at] Bt110.2 billion, which are currently in the application process," Premchai said. In the construction business, Italian-Thai Development ranks in front of other contracting companies listed on the Stock Exchange of Thailand. It expects to record a net profit this year, from the both private and the government projects, after suffering a net loss Bt2.65 billion in 2008, he said. Ch Karnchang's executive-board chairman and chief executive Plew Trivisvavet said his company had a backlog of signed construction contracts worth a combined Bt12 billion. It expects to win new contracts to help build the new rapid-transit rail routes that will increase the value of its projects on hand by nearly Bt10 billion this year, he said. In addition, it has other contracts waiting to be signed. They include the first contract for construction of the Purple Line rapid-transit route, the construction of an underground pedestrian tunnel at a Bangkok intersection, a small power plant in Ayutthaya's Bang Pa-in district and the Nam Bak Dam in Laos. As well, Ch Karnchang is planning to bid for many other projects, including the Red, Blue and Green lines, as well as road-construction jobs in India and Vietnam. The company believes the Purple Line contract will be the most profitable one, even though CKTC - a joint venture between Ch Karnchang and Tokyo Construction - had to lower its project price in the most recent round of negotiations with the Mass Rapid Transit Authority. Plew said the worsening local economy would not affect Ch Karnchang because the government would implement many measures to shore up the economy and maintain employment. He expects the company's revenue and net profit to surpass those of 2008, which was a difficult year because of volatile construction-material prices. This year, prices seem stable, which makes for easier management. Last year, Ch Karnchang and its subsidiaries posted consolidated revenue of Bt14.51 billion, down from Bt14.92 billion in 2007. But the group recorded a higher net profit of Bt544 million, up from Bt14 million in 2007. With more government projects open for bidding this year, a number of securities brokers are recommending "buy" on the stocks of construction contractors, especially Sino-Thai Engineering and Construction, Ch Karnchang and Syntec Construction. Siam City Research Institute has maintained a "neutral" recommendation for the entire contractor sector, saying delays in government spending on infrastructure projects, while limiting the amount of construction work done in the short term, will keep the sector's earnings stable during the first half of 2009 and lead to a possibly significant rise in the second half. The institute believes that Cabinet approval of four electric train routes - the Purple, Red, Light Green and Green lines - will assure the contractor sector of continuous revenue from this year until 2013. The broker believes the number of construction projects will increase during the second half of this year, starting with the Purple and Red lines, worth Bt36.05 billion and Bt8.7 billion, respectively. It says a start on the infrastructure mega-projects should boost confidence among private investors. Siam City Research Institute's top pick in the contractor sector is Ch Karnchang, for which it has made a "buy" recommendation with a fair value of Bt4.50. It says the firm's earnings are expected to improve this year on the strength of its backlog, which is worth as much as Bt12 billion. There is also the strong possibility of new small-power-producer projects worth Bt18 billion, a planned tunnel beneath Charan Sanitwong Road, and the construction of the Purple Line. These will contribute to Ch Karnchang's 2009 earnings, which are expected to grow by 4 per cent year on year to Bt13.87 billion, as well as strengthening its earnings over the next three to five years. Asia Plus Securities's head of research Therdsak Thaveeteeratham agreed that construction-material costs were no longer a concern for the sector, which absorbed high steel and oil costs last year. He also echoed Siam City Research's view that the number of new construction projects would increase in the second half of this year. The sector is likely to record combined net profits of Bt1.17 billion this year, marking a turnaround from last year's loss of Bt1.44 billion, he said. Therdsak's top picks for the sector are Sino-Thai Engineering and Construction and Syntec Construction. Sino-Thai is a major contractor with expertise in the construction of power plants, petrochemical plants and waste-management systems. Its financial situation is strong, with cash reserves at the end of last year totalling Bt974 million - higher than its short-term borrowing of Bt769 million. Thus, Sino-Thai's debt-to-equity ratio is as low as 0.2 times, leaving the firm well prepared should any liquidity problems arise this year, Therdsak said. Sino-Thai's backlog is worth Bt12.09 billion. This year, it is expected to post an operating profit of Bt285 million and pay its first dividend to shareholders. Asia Plus gives it a fair value of Bt3.83 per share. The broker said Syntec's expertise was mainly in high-rise buildings, condominiums and hotels, which provided higher profitability than other types of construction projects. Most of its customers are listed firms, which carry a lower risk of exposure to bad debts. The company's financial status is strong, with cash reserves of Bt431 million. This year, Syntec is expected to post an operating profit of Bt227 million, with revenue from its backlog last year totalling Bt6.2 billion. Asia Plus gives its stock a fair value of Bt0.57 per share.

 

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