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Published on January 2, 2008

Construction companies will continue to face hard times this year if they do not expand abroad or shift focus from government projects to private jobs.

State mega-projects, especially rail systems worth nearly Bt500 billion, will be delayed following bidding interruptions. Bidding was to have commenced last year but has been postponed until the first half of this.

Premchai Karnasuta, the managing director of the country's largest constructor, Italian-Thai Development, said while all of the political parties promised to push ahead with the rail routes, it would be some time before contractors were chosen.

"Although a new government will take action over approvals, this will still take six to seven months. That means construction will start in the last quarter of the year and be of no help to winners in 2008," he said.

This means construction companies must expand their sights abroad or diversify.

The industry shows signs of slow growth this year because of infrastructure-project delays and a crawling property sector, Premchai suggested.

Premchai said Italian-Thai had diversified into mineral resources abroad and sought international construction jobs, which would balance its portfolio as domestic demand dropped. It set aside Bt100 million over five years to spend on its international mineral-resources enterprises. These include steel, copper and gold.

"Construction generates returns on investment of only 5-10 per cent, but minerals will generate up to 30 per cent. We are attracted to this to balance our business, rather than focusing on construction only and suffering a negative impact from government-policy uncertainty," he said.

In the first nine months of last year, all listed construction companies recorded revenue growth lower than estimates.

This follows slender growth in the property market and the stalled infrastructure projects.

Italian-Thai announced total revenue of Bt34.09 billion in the first nine months, up 21 per cent from Bt28.18 billion in the same period the previous year.

Sino-Thai Engineering and Construction reported total revenue of Bt4.34 billion in the first nine months of 2007, up only 4.6 per cent from Bt4.15 billion in the 2006 period.

Ch Karnchang's revenue was Bt3.55 billion in the period, down 30.9 per cent from Bt5.14 billion in the same period in 2006.

Nawarat Patanakarn recorded Bt1.47 billion in revenue for the quarters in question, up 2.4 per cent from Bt1.43 billion a year earlier.

Ch Karnchang is the country's second largest constructor. It too is heading offshore and investing in infrastructure projects at home and abroad, such as hydroelectric developments in Laos.

Chief executive Plew Trivisvavet said although a new government would start building mass-transit systems this year, bidding would take time. Work will not start until the final quarter. Nawarat Patanakarn general manager Vijraput Vajrabhaya said the overall value of government construction projects last year had decreased 50 per cent from nearly Bt800 billion ahead of the 1997 economic crisis.

As a result, the company expanded into the United Arab Emirates, Qatar and Angola via joint ventures.

"We must expand abroad to balance our business to improve growth when the domestic market drops," he said.

Smaller companies that cannot move abroad or diversify to cope with a slowing industry may leave it, he predicted.

There are as many as 20,000 small and medium-sized constructors employing as many as two million people.

Somluck Srimalee

 The Nation