Spending power

For Thailand, the Future Draws Nearer

A long-delayed infrastructure boom is drawing nearer.

An aging, fading, military-controlled Thai economy is on the cusp of its long-delayed infrastructure revolution, but you wouldn't know it from the share prices of the big four in the nation's construction industry.

Ch. Karnchang Pcl, the largest by market value, fell to a four-month low last Friday after tepid results at its power and transportation units. While rising steel prices could squeeze profit, a bigger jolt to investors may be the summary sacking last week of the entire board of the State Railway of Thailand by Prime Minister Prayuth Chan-Ocha.

Waiting to Take Off

Thailand's infrastructure companies have seen little investor enthusiasm for over two years; that might change as the government gets serious about spending

Source: Bloomberg

*Market capitalization-weighted share price of Ch. Karnchang, Sino-Thai Engineering & Construction, Italian-Thai Development, and Unique Engineering & Construction.

Even though that intervention guarantees delays for almost $2.7 billion in contracts that are already late, CIMB Securities is overweight the construction industry. To the extent the government's move shows a growing impatience with the slow pace of railway investment, there's reason to be optimistic.

Transportation is Thailand's No. 1 infrastructure priority, accounting for more than $50 billion in planned project spending. The soon-to-be-launched Thailand Future Fund, intended to scoop up as much as $1.4 billion from the public, will target expressways. Fixing the debt-laden railroad network, however, holds the key to realizing Morgan Stanley's forecast of a 47 percent jump in government spending on infrastructure between 2017 and 2021, after an 18 percent increase over the past five years. 

With almost 470 infrastructure projects ready for bidding, the order books of the large construction companies may be a useful gauge of progress toward that goal. For several years, Ch. Karnchang, Sino-Thai Engineering & Construction Pcl, Italian-Thai Development Pcl and Unique Engineering & Construction Pcl have lagged behind their peers in Southeast Asia, especially Indonesian companies such as PT Waskita Karya, PT Pembangunan Perumahan, PT Wijaya Karya and PT Adhi Karya. 

Closing The Gap

Thai infrastructure companies' shares have missed out on the rally in their Indonesian peers

Source: Bloomberg

*Market capitalization-weighted share price of Ch. Karnchang, Sino-Thai Engineering & Construction, Italian-Thai Development, and Unique Engineering & Construction. **Market capitalization-weighted share price of Waskita Karya, Pembangunan Perumahan, Wijaya Karya, and Adhi Karya.

Gains from an infrastructure boom will ripple far beyond the construction industry. With better infrastructure, annual consumption in Thailand could rise by more than $100 billion by 2021, according to Morgan Stanley, lifting earnings for the entire stock market. In case a border adjustment tax in the U.S. chills exporters' margins, that should provide investors with a welcome layer of insulation.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Andy Mukherjee in Singapore at amukherjee@bloomberg.net

    To contact the editor responsible for this story:
    Paul Sillitoe at psillitoe@bloomberg.net

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