As the bidding envelope for Purple Line starts to sell today (July 5), KTBST Securities (KTBST) maintained an “Overweight” rating on the Thailand Construction Services sector.
On June 15, 2021, the public hearing for the TOR for the southern route of the Purple Line (Taopoon-Ratburana) ended. KTBST stated that the project has a total value of 79 billion baht for a 23.6 km in length, comprising 17 stations. The project splits into six contracts – underground work of four contracts, flyover work (1 contract) and E&M (1 contract). The Mass Rapid Transit Authority of Thailand (MRTA) plans commencing construction in 2022 and completing the project in 2027.
KTBST believes that this issue will have a more positive view of the Construction Services sector as 1) several large-scale projects have seen concrete development (the 130 billion baht double-track project entering a bid in May and the announcement of a TOR for the southern route to the Purple Line) and 2) there are projects in the pipeline worth approximately 840 billion baht, of this the Ekachai-Ban Paew Motorway and the Rama III-Daokanong Expressway (contract 1 and 3) worth a combined 34.0 billion baht are expected to enter into bids in 2021, and the projects worth 200 billion should follow suit in 2022.
Among KTBST’s covered contractor stocks, CH. Karnchang (CK), Sino-Thai Engineering and Construction (STEC), and Italian-Thai Development (ITD) have a high winning rate for the Purple Line, citing their experience with subway construction, and foundation contractors may benefit from subcontracting.
Besides that, KTBST stated that there is a chance for CK and STEC to form a joint venture company to bid on the Purple Line project. If CK and STEC get the underground work 2 contracts worth 20 billion baht and 15 billion baht for each, respectively, this should increase their target prices by 0.50 baht and 0.40 baht per share.
KTBST upgraded CK to its Top Construction Stock Pick, setting a target price of 24 baht. CK appears to be the most attractive investment since it 1) has the biggest chance of gaining the southern route to the Purple Line and 2) has great revenue visibility over the next 5-6 years, with a backlog positioned to enter a new S-curve of approximately 100 billion baht by the end of this year.