For Thailand, the Future Draws Nearer

(Bloomberg Gadfly) -- An aging, fading, military-controlled Thai economy is on the cusp of its long-delayed infrastructure revolution, but you wouldn't know it from the share prices of the big four in the nation's construction industry.

Ch. Karnchang Pcl, the largest by market value, fell to a four-month low last Friday after tepid results at its power and transportation units. While rising steel prices could squeeze profit, a bigger jolt to investors may be the summary sacking last week of the entire board of the State Railway of Thailand by Prime Minister Prayuth Chan-Ocha.

Even though that intervention guarantees delays for almost $2.7 billion in contracts that are already late, CIMB Securities is overweight the construction industry. To the extent the government's move shows a growing impatience with the slow pace of railway investment, there's reason to be optimistic.

Transportation is Thailand's No. 1 infrastructure priority, accounting for more than $50 billion in planned project spending. The soon-to-be-launched Thailand Future Fund, intended to scoop up as much as $1.4 billion from the public, will target expressways. Fixing the debt-laden railroad network, however, holds the key to realizing Morgan Stanley's forecast of a 47 percent jump in government spending on infrastructure between 2017 and 2021, after an 18 percent increase over the past five years. 

Planned project spending on transportation

$50 billion

With almost 470 infrastructure projects ready for bidding, the order books of the large construction companies may be a useful gauge of progress toward that goal. For several years, Ch. Karnchang, Sino-Thai Engineering & Construction Pcl, Italian-Thai Development Pcl and Unique Engineering & Construction Pcl have lagged behind their peers in Southeast Asia, especially Indonesian companies such as PT Waskita Karya, PT Pembangunan Perumahan, PT Wijaya Karya and PT Adhi Karya. 

Gains from an infrastructure boom will ripple far beyond the construction industry. With better infrastructure, annual consumption in Thailand could rise by more than $100 billion by 2021, according to Morgan Stanley, lifting earnings for the entire stock market. In case a border adjustment tax in the U.S. chills exporters' margins, that should provide investors with a welcome layer of insulation.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

To contact the author of this story: Andy Mukherjee in Singapore at amukherjee@bloomberg.net.

To contact the editor responsible for this story: Paul Sillitoe at psillitoe@bloomberg.net.