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Contractor

Prolonged political turmoil has negative sentiment on contractor sector Neutral

Contractor

Government’s megaproject auction delayed due to prolonged political turmoil

After Yingluck declared parliament dissolution, upcoming government’s

megaprojects auction (e.g. Pink and Orange railway) needs to be delayed

for at least three or four months until the new cabinet is officially in action

and give an approval. Meanwhile, B2tr loan bill is currently under the

Constitutional Court’s deliberation whether it violates the Constitution, as

the court accepted to deliberate the bill yesterday. If the bill violates the

Constitution, the project will be delayed further, as the government would

need to wait for annual budget distribution or borrow under the public debt

bill. There has been no government’s megaproject auction during the

recent six months, so the backlog of major contractor companies (ITD, CK,

STEC and UNIQ) has declined from early-2013. Though this would not

affect their earnings in next couple years, their profit in the future would

be pressed if the political conflicts continue.

- Engineering contractor companies’ earnings to prosper

Engineering contractor companies (TTCL, STPI and SRICHA) are not

affected much by the political unrest, as most of their clients are private

oversea companies that have been investing and expanding continuously.

Due to advantageous labor cost and their quality that meets international

standard, TTCL, STPI and SRICHA’s earnings would be prosperous in next

couple years. Moreover, with their strong financial position (strong net

cash), their dividend yield is attractive, especially SRICHA with 7%

dividend yield.

- Downgrade to "NEUTRAL". Top pick is STPI

Though delayed government’s megaproject auction have not affected

contractor sector’s earnings, Thailand’s political unrest directly has a

negative sentiment on contractor stocks, as they are closely related to the

government’s project. We downgrade from "OVERWEIGHT" to "NEUTRAL".

Sector’s top pick is STPI(FV@B32.41), as its profit is projected to leap in

2014, after income from the construction of Ichthys project is fully

recognized.


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