Samsung Asset Favors Battered Thai Builders Amid Spending Boom

  • Construction stocks are second-worst performers this year
  • Richardson buying Sino-Thai, Unique Engineering shares

Samsung Asset Management Ltd.’s Alan Richardson is betting on Thailand’s beaten-down construction stocks as the government steps up efforts to speed infrastructure spending needed to counter a slowdown in exports in Southeast Asia’s second-biggest economy.

The Hong Kong-based fund manager whose Southeast Asia fund beat 97 percent of peers over the past five years with a 9.8 percent return, has been buying shares in Sino-Thai Engineering & Construction Pcl and Unique Engineering & Construction Pcl. Thailand wants to accelerate spending of $83 billion over the next seven years to expand its main airport amid a tourism boom and build new railways, roads and customs checkpoints to remove bottlenecks that hamper trade with its neighbors.

“With economic growth below 3 percent, there’s a desire to try to supplement weak growth with fiscal stimulus,” Richardson said. “In the second half, there’s going to be a ramp up phase in terms of fiscal spending on double-track railways and airport expansion. You’re going to see a rapid rise in orderbook momentum among the construction companies.”

Thailand’s military junta aims to use a special-powers rule to help kick-start a slew of projects, which may help bolster investor confidence and stem a slump in the nation’s builders, the second-worst performers among industry groups in 2016. The benchmark stock index has retreated from this year’s peak in April as global funds pulled $239 million from the stock market this quarter.

Thai Prime Minister Prayuth Chan-Ocha is struggling to spur economic expansion since taking over in a military coup in May 2014, with growth of 2.8 percent last year among the slowest in Southeast Asia. In March, the Bank of Thailand in March cut its 2016 economic growth forecast to 3.1 percent from 3.5 percent.

The government plans to use a measure known as article 44 to speed up the approval of a new runway at Bangkok’s increasingly stretched main airport, Transport Minister Arkhom Termpittayapaisith said in an April 29 interview. The rule makes any action the junta takes "lawful, constitutional and final" and it has been used for everything from banning protests to giving soldiers authority to arrest people. 

He said the powers will also likely be used for the government’s planned high-speed rail projects, as they have already been used to push through three out of seven planned double-track projects.

Multiplier Effect

“Infrastructure spending would help GDP growth in the longer term,” said Soo Hai Lim, a Hong Kong-based money manager at Baring Asset Management, which oversees about $41 billion. “Construction activities create a multiplier effect for the economy.”

The SET Construction Services Index of 19 builders has tumbled 27 percent from its February 2015 high. It’s down 9.8 percent this year, with Sino Thai and Unique Engineering among the worst decliners. The industry measure is valued at 18.6 times projected 12-month earnings, near the most expensive level in more than a year. While the SET Index has risen 7.9 percent in 2016, making it the best performer among its Southeast Asian peers, the gauge is down 2.4 percent from an April 21 peak. 

Thailand’s army seized power in a military coup two years ago after months of street demonstrations against the elected government. The military government has repeatedly pushed back the date for possible elections, with the latest timeline calling for polls in late 2017. 

“The government wants to return back democratic elections next year,” said Samsung Asset’s Richardson. “It wants to boost growth ahead of that, so there’s an interest to increase fiscal stimulus.”

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