GRADUAL RECOVERY EXPECTED

       The Thai Contractors Association believes the industry will recover gradually over the next year, despite expectations that the country's economy will recover by the last quarter of this year, the association's president Polpat Karnasuta said at interview with The Nation last week.
       The contracting business will have to wait till next year to reap the results of the government's injection of Bt800 billion through the "Thai Khemkhaeng" (Invest for Strength) project, Polpat said.
       "Thai Khemkhaeng" will be in effect from fiscal 2009 through 2011.
       The contracting industry will also have to wait for the government to open bidding on infrastructure worth Bt500 billion for Bangkok's mass-transit system, especially the rail system linking Bangkok's central business district and suburbs.
       Polpat said that contractors will continue to face hardship through the last quarter of this year.
"In my view, if the government can spend according to its plan, the contracting business will recover in the next year. If not, our business will take time to recover," he said.
       The Mass Rapid Transit Authority of Thailand (MRTA) has signed a contract to build the mass-transit Purple Line from Bang Sue to Toa Poon, worth Bt14.29 billion.
       The Purple Line project is divided into four civil-work contracts. Sino-Thai Engineering and Construction, winner of the second contract, has agreed to reduce its bid price from Bt15.3 billion to Bt13.1 billion.
       The Power Line Engineering-led consortium - winner of the third contract - has also lowered its price, from Bt6.3 billion to Bt5.025 billion.
       The fourth contract, which has yet to be put out for bidding which and involves installation of the rail system, will cost Bt4 billion.
       The entire project will cost Bt59.8 billion, which includes Bt9.2 billion for land expropriation, Bt1.296 billion for project design consultancy and Bt13.243 billion for the signalling and train systems.
       State Railway of Thailand awarded the job to build the Taling Chan-Bang Sue section of the Red Line, worth Bt8.78 billion, to Unique Engineering and Construction and Chunwo Construction and Engineering last year.
       Siam City Research Institute 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.
       The broker's top pick in the contractor sector is Ch Karnchang, for which it has 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 Rd, 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 profit 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.