Contractor

Construction 

 

- Government to launch mega project bids 

Owing to the restructuring of the economic improvement team, especially the Ministry of Transport responsible for mega projects, many investment projects are expected to make progress. Currently, there are three mega projects available for private companies to submit bidding envelopes: B11,348m-worth Chachoengsao – Kaeng Khoi – Klong 19 double-track railways, B27,007m-worth Jira junction – Khon Kaen double-track railway, and B14,200m-worth 14-contract Pattaya – Map Ta Phut Motorway (the first contract is worth B865m); the outcome of these bids will be announced within this year. Then, other projects will be available for bids. The Transport Ministry is currently working on completing the B1.6tr-worth 17 transportation investment projects (including three Motorways, four skytrain lines, and six double-track railway projects) by 2015-2016.  Benefiting big-cap, small-cap contractors 

The mega project bids would mainly benefit big-cap contractors. According to the terms of reference (TOR), eligible bidders for double-track railway projects are required to have paid-up capital of at least B500m and experience in high-value projects contraction previously; only ITD, CK, STEC, and UNIQ are likely to meet the criteria. However, medium- and small-cap contractors would also benefit from these projects as subcontractors. Since excessive working capacity has been absorbed, price competition between contractors would subside. In addition, contractors in specific fields like SEAFCO and PYLON would work on foundation piles and foundations, especially for elevated roads. 

- OVERWEIGHT. Top Picks: CK, STPI 

Overall construction industry would be prosperous thanks to the auctions of the government mega projects and increasing construction projects from the private sector, benefiting the contractor sector. Our recommendation is OVERWEIGHT. Top picks are CK and STPI. CK is the most advisable stock since works on government projects, while STPI focusing on private projects has the least expensive valuation, with the lowest P/E ratio in the sector.