Infrastructure gains may precede Thai general election

In common with other Southeast Asian countries, Thailand’s infrastructure needs upgrading, but how can investors in listed equity participate?

Thailand’s infrastructure is not quite as lamentable as it is in other countries in the region, although a visitor or investor wouldn’t necessarily appreciate that.

Many investors punt contractor stocks ahead of the general election as they are often politically connected.

A general election appears poised to be held in Thailand within the next three months, though there are widespread worries the army is making noises that suggest a coup d’etat might be in the offing, especially if they don’t like the result.

“The builders or contractors such as Ch. Karnchang, Ital Thai, and Sino Thai Engineering are trading on over 20 times price/earnings ratios and margins from government projects are slim,” says Shirrin Visetpukdi of Bangkok-based SAV Management, which runs the Thai Icon Fund and Asian Icon Fund. “The best of the three is Sino Thai as it has lower debt than its peers.” 

Smaller infrastructure contractors such as Christiani & Nielsen (Thai) PCL and Syntec Construction have performed well this year as these two have undergone years of debt restructuring.

Last month the water festival of Songkran was held in Thailand, though you don’t want to get too close to their H20. Two years ago a candidate for Bangkok’s governorship fell in a klong (canal) whilst giving a speech on the necessity for clean water and instead of yelling for help, was heard to scream “It stinks so bad”. Two days later, her campaign manager, in a follow-up publicity stunt, bathed in the canal and drowned.

Bangkok was intending to clean up its waterways to commemorate the anniversary of their king’s accession to the throne, but the politicians’ talk did not extend to action.

In terms of profiting from the pong in the klong, infrastructure plays such as Eastern Water Resources Development and Thai Tap Water Supply provide water in Thailand’s provincial areas and the dividend yields are approximately 6-7% with growth of around 6-10%.

An area which could be construed as an infrastructure advantage or disadvantage, depending on which way you look at it, is Thailand’s roads. Neighbouring countries are envious of Thailand’s road network in comparison with their own meagre highways. However, it can also be construed as an over-concentration in their road network compared with its other logistic transport systems.

Most of Thailand’s haulage is conducted by road, at an average cost of Bt1.72 per kilometre. Rail and water transport cost just half and one third of that amount per kilometre, but the infrastructure to capitalise on this price advantage does not exist.

“There is huge need for new infrastructure investment in Thailand especially with respect to rail,” says John Thompson of NT Asset in Bangkok, though he points out that his fund does not focus on this segment.

“There are not many listed plays here, though, and the ones that are have been fraught with concession/contract problems in the past, for example not being allowed to raise tolls etcetera in line with contracts that have been signed by previous governments.”

The State Railway of Thailand has budgeted $5.8 billion for 2010 to 2014 to develop its double track system, buying new engines and building new rail lines to the port at Laem Chabang and the Eastern Seaboard.

A lot will depend on the results of the general election. The Transport Ministry is a prize incumbency for any Thai minister. It is not currently held by the Democrat Party. A junior partner of the coalition, the Bhum Jai Thai party, has a grip on that office.

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