Contractor

Contractor
Government's megaproject auction delayed due to prolonged political turmoil
After Yingluck declared parliament dissolution, upcoming government's
megaprojects auction (e.g. Pink and Orange railway) needs to be delayed
for at least three or four months until the new cabinet is officially in action
and give an approval. Meanwhile, B2tr loan bill is currently under the
Constitutional Court's deliberation whether it violates the Constitution, as
the court accepted to deliberate the bill yesterday. If the bill violates the
Constitution, the project will be delayed further, as the government would
need to wait for annual budget distribution or borrow under the public debt
bill. There has been no government's megaproject auction during the
recent six months, so the backlog of major contractor companies (ITD, CK,
STEC and UNIQ) has declined from early-2013. Though this would not
affect their earnings in next couple years, their profit in the future would
be pressed if the political conflicts continue.
- Engineering contractor companies' earnings to prosper
Engineering contractor companies (TTCL, STPI and SRICHA) are not
affected much by the political unrest, as most of their clients are private
oversea companies that have been investing and expanding continuously.
Due to advantageous labor cost and their quality that meets international
standard, TTCL, STPI and SRICHA's earnings would be prosperous in next
couple years. Moreover, with their strong financial position (strong net
cash), their dividend yield is attractive, especially SRICHA with 7%
dividend yield.
- Downgrade to "NEUTRAL". Top pick is STPI
Though delayed government's megaproject auction have not affected
contractor sector's earnings, Thailand's political unrest directly has a
negative sentiment on contractor stocks, as they are closely related to the
government's project. We downgrade from "OVERWEIGHT" to "NEUTRAL".
Sector's top pick is STPI([email protected]), as its profit is projected to leap in
2014, after income from the construction of Ichthys project is fully
recognized.