BANGKOK/KUALA LUMPUR: Workers pouring cement into blocks in searing heat to build a new rail line northwest of Bangkok illustrate what many see as the early stages of a long-delayed Southeast Asian infrastructure resurgence.
From Bangkok to Kuala Lumpur to Hanoi, policymakers are dusting off ambitious plans for railways and other projects, emboldened in some cases by investment from China.
After delays brought on by the global financial crisis, at least US$20 billion (RM60.6 billion) in projects are under construction or due to start this year, as governments focus on stimulating economic growth and attracting foreign investments.
Driven by large-scale rail projects, builders in Malaysia and Thailand such as IJM Corp Bhd and Sino-Thai Engineering and Construction Pcl look set to benefit the most in the next few years, strategists say.
But Indonesia is struggling to pass a land reform bill, the Philippines faces funding problems and Vietnam grapples with red tape.
Thailand and Malaysia are believed to be in the early stages of a new infrastructure investment cycle. Contractors in both countries are posting record construction orders, strong enough to boost revenue growth over the next few years.
"We believe infrastructure spending is poised to rise sharply in the coming quarter and could remain robust in the next two to three years," said Credit Suisse analyst Danny Goh in Kuala Lumpur.
In Malaysia, a groundbreaking ceremony is due on July 8 for the US$11.5 billion Klang Valley MRT, a three-line 150km rail network that will loop Kuala Lumpur.
Most Southeast Asian contractor shares have underperformed the market so far this year. For many investors, political and regulatory risks have outweighed the benefits. Some say that is now changing.
"The good news has not been priced in. We expect more upside for Malaysian contractors," said Goh. His top picks: Malaysian construction, property and plantations group IJM and Gamuda Bhd.
IJM is also the preferred pick of Citigroup analyst Petrina Chong, due to its strong order book and property sales.
Among Thai contractors, several analysts recommend Sino-Thai, which has a strong balance sheet with a net cash position, while its rivals Italian-Thai Development Pcl and Ch Karnchang Pcl have high debt and weak margins.
But Thailand's fraught politics add some uncertainty.
"Investors are worried about the election results (in Thailand). There might be some change after the poll, which may not be in favour of contractors," said Chanpen Sirithanarattanakul, a senior analyst at DBS Vickers Securities.
Valuations of Thai contractors look expensive against regional peers. Sino-Thai trades at 16 times 2012 earnings, compared with IJM's 15 and Singapore contractors' average of 9.
"Thai firms' PEs (price-earnings multiples) are quite high and earnings are more volatile, while regional peers have more stable earnings growth," said Kasem Prunratanamala at CIMB Securities in Bangkok.
In the region of about 550 million people, construction should accelerate in the next few years as governments forge ahead with multibillion dollar infrastructure plans.
Southeast Asian countries are expected to invest about US$32 billion in transport infrastructure during 2010-2014, representing average growth of 3.5% a year, according to advisory firm KPMG.
Singapore's construction sector should see moderate growth with several major projects near completion. But the city-state also plans to expand its rail lines to 280 km from 138km by 2020.
In Malaysia, some fear the government may face difficulties acquiring land from homeowners and companies needed to build the rail network, causing delays.
"Project execution is a big risk," said Abdul Jalil Rasheed, fund manager at Aberdeen Asset Management.
"We all know that to take up a project of RM35 billion-RM40 billion requires a lot of execution. It involves land acquisition, which is a very thorny issue and that could potentially delay things," said Rasheed. Aberdeen does not own Malaysia contractor shares but owns cement sector shares.
Malaysia's relatively clear land laws reduce the risk of the troubles for land acquisitions. Land problems, however, could trip up investments in Indonesia pending approval of a land-reform bill, expected in the second half of the year at the earliest.
The bill should help the government acquire land needed for projects. A state committee will consult owners and determine what, if any, compensation should be paid. Its passage should open the way for more infrastructure projects — from toll roads to bridges.
Major beneficiaries are likely to include toll-road builder PT Jasa Marga, property firm PT Bakrieland Development and construction firm Pt Wijaya Karya.
In the Philippines, the cash-strapped government wants to tap the private sector, both foreign and local, to help fund infrastructure upgrades while freeing cash in the budget to improve social services.
But only two or three deals are likely this year, including two rail projects.
In Bangkok, a few weeks before a toughly fought July 3 election, Ch Karnchang and Sino-Thai separately won bids to build two rail projects in a surprise move. Bid activities are typically slow during periods of political change.
The two projects are part of Thailand's ambitious plans to spend 1.9 trillion baht (RM187 billion) in the next 20 years to expand its rail and transport networks and to push through with a long-delayed upgrade to its public transport systems.
To ease traffic congestion, cut logistic costs and meet growing demand in the city of 15 million people, Bangkok plans to expand its electric train line to 236km by 2015 and to 391km by 2019, the transport ministry says.
Only 6% of Bangkok commuters use the mass transit system, compared with more than 30% in Singapore and Hong Kong. That ratio is also below 10% in Kuala Lumpur, Jakarta and Manila.
Bangkok Metro Pcl, which runs a 20km underground train system, expects the number of Bangkok commuters using mass transit to hit 10% after a planned 23km "purple line" begins operations in 2016.
Infrastructure markets in Indochina countries such as Vietnam, Myanmar, Laos and Cambodia, also offer opportunity for construction firms in neighbouring Thailand. Among them are rail projects in Vietnam's capital Hanoi and Ho Chi Minh City and Myanmar's US$8 billion Dawei deep-sea port.
"Infrastructure development is just taking off and the region offers a lot of opportunities," said Chatchai Chutiman, an executive at Italian-Thai Development, which has been aggressive in expanding its business in Myanmar. — Reuters
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