Major construction companies Sino-Thai Engineering and Construction, Italian-Thai Development and Ch Karnchang stand to benefit the most from the positive psychological impact of the mass-transit projects announced by the government.

Brokerages recommend short-term speculation on the construction stocks, although they warn investors to wait for the situation to become clearer on the bidding.

The construction stocks had earlier risen as investors speculated about the impending announcement.

Sino-Thai stocks have risen 14.35 per cent from Bt4.46 on January 31 to close at Bt5.10 yesterday, while Italian-Thai stocks have increased 5.83 per cent from Bt4.12 to Bt4.36. Ch Karnchang has gone up 4.12 per cent from Bt8.50 to Bt8.85.

The Cabinet on Tuesday approved in principle the Bt165-billion mass-transit projects, of which the first to be built will be the Red Line from Bang Sue to Taling Chan. The tentative schedule for bidding and the start of construction is set for April and October this year, respectively, with work slated for completion in 2010.

Natanee Savirasarid, an analyst at Ayudhya Securities, said if the mass-transit project plan were not postponed, it would have a positive psychological impact, particularly for the construction sector.

With the mega-projects, the volume of work would be large enough to make up for the current sluggish situation in the construction market. If all mass-transit projects were opened for bidding at the same time, smaller construction firms would also benefit.

Natanee said the construction sector was expected to benefit from the mass-transit projects from the third quarter onward. The cement and steel sectors are also expected to gain. Steel is expected to represent more than 5 per cent - Bt8.4 billion - of construction costs.

She believes Sino-Thai has an edge over other potential bidders, especially as to operating costs, as it has won the bidding for construction for the airport-rail-link project. Part of the structure in that project is similar to that for the mass-transit projects.

However, while construction is still in progress for the elevated train, Sino-Thai's capacity to bid for the new project may be less than its two rivals.

Natanee warned that fundamentally, it was too soon to assume the five rail-route projects would benefit the construction sector in the long term. There are several uncertain factors in the bidding details of each project.

Hence, she recommends only speculation rather than long-term investment in the construction and construction-material sectors.

An analyst from DBS Vickers Securities (Thailand) agrees that the three major construction firms will benefit from the announcement, but significant income from the good news will accrue only next year at the earliest.

Top-pick stocks, according to DBS Vickers, are Ch Karnchang with a fair value of Bt13.2 per share, while a fair value for Sino-Thai is Bt5.85. But the securities house recommends fully valued for Italian-Thai, as the company is still facing a corruption probe over its work at Suvarnabhumi Airport.

An analyst from Capital Nomura Securities remains cautious about the prospects for the five rail projects, saying the bidding schedule is still tentative. He said Seafco and Sino-Thai had the highest potential to bid for the mass-transit projects, as the Red Line is an extension of the airport rail-link project, in which both companies are involved.

Suchada Kirakul, assistant governor of the Bank of Thailand, said that the Cabinet's approval of five lines exceeded the central bank's expectations and could have a positive impact on the economy.

"We had expected the government to announce only one or two lines of the mass-transit projects, with injection of funds into the economy next year. But yesterday's announcement is positive news for the economy," Suchada said.

The Bank of Thailand also expects the mega-projects to help boost private investment, particularly in the second half.

Siriporn Chanjindamanee,

Jiwamol Kanoksilp

The Nation