Revenue Structure

Unit : Thousand Baht

Services Performed by % of shares held 2022 2021 2020
Income % Income % Income %
MEP PLE - 4,400,833 54.72 3,694,031 50.38 4,733,922 55.16
  PLE Inter (Unima) 99.99 - - - - - -
Civil Construction PLE - 3,641,093 45.28 3,637,453 49.61 3,845,098 44.80
  PLE Inter (Unima) 99.99 - - - - - -
  JV PAR 100.00 - - - - - -
Bann Euaarthorn PLE - - - - - - -
Others PLE - - - - - 3,809 0.04
  B-Lay Plus Co., Ltd. 69.70 - - 574 0.01 133 0.00
Services Income - - 8,041,926 100.00 7,322,058 100.00 8,582,962 100.00
Other Income - - 189,698 - 301,579 - 190,032 -
Total revenues - - 8,231,624 - 7,633,637 - 8,772,994 -
Remark
1 In December2021,PLE disposed of B-LayPlus Co., Ltd.’s shares to existing shareholders.
Marketing and Competition Conditions
NatureofProducts and Services

Businesses operated by the Company, subsidiaries and joint venture (regarded as a whole as “Group of Companies”) can be categorized into 5 groups based on the nature of service provided, for instance, design, procurement, and electricity system installation, air-conditioning system, sanitary and fire prevention system, telecommunication system ICT and Seeurity systems, and civil construction. Besides, the Company has executedinvestment anddevelopmentof the real estate business, with details of each categoryas follows:

Electricity System
    • PowerSubstation
    • Power Distribution
    • ElectricalPowerSupply & EmergencyPowerSupplySystem
    • LightingSystem
    • TelephoneSystem
    • Public AddressSystem
    • Master Antenna
    • SecuritySystem
    • LightningProtectionSystem
    • Building AutomationSystem
    • Energy ManagementSystem
  • SolarPowerSyste
Air- Conditioning System
  • Air ConditioningSystem
    • Ventilation
    • Refrigeration
    • Clean Room
    • Automatic Temperature and Humidity ControlSystem
    • PressurizedStairs
    • Variable Air Volumeor VAV
  • District Cooling System
Sanitary and Fire Prevention System
  • PlumbingSystem
    • Steam Boiler and Hot WaterSystem
    • Waste Water andSewage Treatment
    • Drinking WaterSystem
    • SwimmingPool
    • GasSystem
    • Drainage
    • SprinklerSystem
    • FM 200System
    • Fire Alarm System
    • CO2System
    • FirePumps and Controller
    • Fire Extinguish Equipmen
Telecommunication System
  • OpticalFiber
    • Time Division Multiple Access
    • Wireless Telephonen System
  • Telecommunication System
  • Telephone System
  • ICT System andSeeurity systems
Civil Construction Works The Company operates general civil construction business, covering office buildings, commercialbuildings, hospitals, department stores, educational institutes, hotels, accommodation, industrial plants, warehouses, airports andpower plants, etc.
Marketing and Competition
Significant Product and Service MarketingPolicy

In developing the competition strategy and business policy of the Group, apart frommaintaining the market share amid the intense competition due to the economic slowdown, the Group also emphasizes buildingthe long-term competitive capacities. The Group’s competition strategies andbusiness policies are as follows:

1. Reputation and experiences of engineering executives: Their capability andmanagementhave been proven as they can manage and bring the Group to survive during the economic crisis in 1997andto continue to expand the business afterward. With practical experiences, valuable knowledge, widely reputableacceptance in the industry greater than 35 years, engineering executives can oversee and help the engineers who are theproject managers of other projects. With these experiences, this enables the Group to quickly respond to any changes inthe areasof engineering ornew technology.

2. With their previous performance, the Group has highly gained acceptance and trust from customers for their work quality and service. Regarding the customers’ satisfaction, tremendous customers repeat the service with the companies and recommend us to other clients. The Group would like to maintain and enhance their reputationbyperforming the followingkey policies.

  • Maintaining their quality and performance to be in the acceptable standard level
  • Keepingintegrity and business ethics
  • Completing the project ontime aspromised to clients
  • Taking careof customer’sbenefits byconsideringthe companyas theowner of the project, and
  • Offering after-sales service before and after the contract period

3. Capability of personnel – as human resource is deemed to be the most crucial factor of the business, the Group has a policy to enhance and improve skills and ability of staff members. The followingpolicies will enhance efficiency and maintain the Group’s competitiveness

  • Continuous improvementof staff knowledge and skillsbothfor technical andmanagerial knowledge
  • Developing an accountability to the workand the society
  • Creating satisfactory andfriendly workatmospherebothfor the individuals andthe environment
  • Teamworkandgood cooperation betweenengineering team and other staff members is performed with the objective of providing excellence service tocustomers.
  • Staff performance is measured by KPI and BalanceScorecard system, including Talent Management and the succession planning systems, whichhavebeen incorporated for the continuation of executivepositions.

4. Strong financial position: the Group’s policy places high importance on strongfinancial structure by maintaining the debt to equity ratio in the low level as well as obtaining appropriate liquidity ratio. These shall mitigate the risks in doing business and enhance customer confidence toward the Group. As of 31 December 2022, the company’s Debt to Equity ratio was 4.67x with the liquidity ratio of 1.11 time as well as cash and cashequivalent of 429.45 million Baht. Besides, the company has been supported by commercial banks for business operations with the total credit facilitiesof35,761 million Baht to support thebusiness.

5. Efficiency of operational management: The Group establishes a policytocontinuously develop central system for the operations and work process to enhance efficiency and ability toberesponsive to customer’s demand. The Group has been certified ISO 9002:1994 for their quality management systemsince August 31, 2000 and ISO 9001 Version 2008 since October 2, 2003 from BVQI Co., Ltd. The companygot certified of the quality management in the managerial system to be in line with ISO 9001:2008 by BVQI, who evaluated and certified the company’s continuality of the quality management system on October 28, 2015. BVQI will reviewtheprocess every 6 months and also adjust the review process in the form of Process Approach. In 2017, the companyhas already received the international standardcertification of ISO 9001:2015, which has remainedvalid until present.

6. Effective procurement: The Group has developed the procurement policy to createtransparency and competition amongst suppliers to assure that production cost is within the appropriate level, as well as collaboration with supplychain partners in developingandimproving work procedures andequipment.

Target Customers,Sales and Distribution Channels

Customer groups can be categorized into 2; private sector customers such as officebuildings, commercial buildings,, accommodations, hotels, hospitals, department stores, industrial plants, etc., and publicsector customers such as government bodies, state enterprises, whereby the service provision proportion in the past 3years is as follows:

Unit: Million Baht

Type 2022 2021 2020
Value % Value % Value %
PrivateSector 1,479.50 84.68 5,715.00 66.27 1,349.00 9.40
PublicSector 267.72 15.32 2,908.43 33.73 12,998.47 90.60
Total 1,747.22 100.00 8,623.43 100.00 14,347.47 100.00

Over the past 3 years, the Company has started to take on more of government projects, despite the fact that the participation in the bidding of government projects requires consideration of details stated intheTerms of Reference (TOR) of the hiring organization. The bidding participants must have track record of working withthe government sector or having been registered with particular government institutes. Currently, the Companyhas registered with such organizations as the Mass Rapid Transit Authority of Thailand (MRTA), Provincial ElectricityAuthority, Provincial Waterworks Authority, Bank of Thailand, and the Ministry of Tourism and Sports, BangkokMetropolitan Administration, Chulalongkorn University, and Airports of Thailand (AOT), etc. However, the Group does have the policy to register with more organizations in order to enhance its capacity to take on more of government projects as the government has the policy to invest in different public utility systems, especially in electric power, mass public transportationand telecommunication on a continuousbasis.

The projects taken on by the Group are contracting projects, assigned directlybycustomers or via subcontracting arrangements. Over the past several years, about 90% of the total project value has beengenerated from bidding, while the remaining has been generated from contacts and negotiation. The majority of theprojects are ones that the Group got assigned directly by customers as the pricing and payment terms are more favorable. On the other hand, subcontracting projects serve more as a means to gain access to customers and newdistributionchannels via large construction companies or large international construction companies such as Italian-Thai Development PCL, Chor. Karnchang PCL, Sino-Thai Engineering and Construction PCL and Marubeni Corporation, to create a portfolio in government projects and overseas market, since the majority of the government project biddingor overseas projects are based on single contracts for construction and engineering, and the main construction contractor will engage subcontractors to execute the engineering works. In this regard, the proportion of projects obtained fromdirect customer contact andones from subcontractingagreement in thepast3 years is as follows:

Unit : Million Baht

Type 2022 2021 2020
Value % Value % Value %
Direct Contact 1,672.84 95.74 6,212.43 72.04 14,077.47 98.12
Subcontracting 74.38 4.26 2,411.00 27.96 270.00 1.88
Total 1,747.22 100.00 8,623.43 100.00 14,347.47 100.00

Furthermore, the Group also focuses on building good relationships with customers inorder to foster opportunities in taking on new projects from existing customers in the future. In 2022, the averageproportion of projects from new customers is about 80.61%, and that of existing customers is about 19.39%. Current customers who have trust and credibility in the Company are, for example, Provincial Electricity Authority, Chulalongkorn University, Walialuk University, Lotus, Tops Supermarket, Central Plaza Department Store, NobleGroup, CP Group and TCC, etc.

Competitive Landscape

The Thai economy in the fourth quarter of 2022 expanded by 1.4%(%YoY), compared to 4.6% percent in the third quarter of 2022. After seasonally adjusted, the economy declined by 1.5% fromthethird quarter (%QoQ SA).

On the expenditure side: There was a tangible growth in service export, while privateinvestment and consumption exports also increased at a satisfied rate. Government expenditure and public investment increased. However, exports ofgoods and government spendingcontinued to decline.

On the production side: The agricultural and construction sectors have recovered, while the accommodation, food services, wholesale and retail trade sectors, maintenance transportation and storagesectors reported positive expansion in relation to the recovery of the tourism sector. There was a decline in industrial product manufacturing.

The Thai economy in 2022 improved by 2.6%, compared with a growth of 1.5%in2020 following the recovery of the tourism sector, and gradual improvement of domestic demand, including privatesector consumption and investment. The headline inflation was at 6.1% and the current account registered a surplus of 3.4% of the GDP.

The Thai Economyin theFourth Quarter and in 2022in termsof Manufacturing and Construction

The construction sector expanded by 2.6% compared to a 2.6%decline intheprevious quarter. This was in line with the decline in private construction and the slowdown in publicconstruction, while the construction material price index has continuously been on the rise. Public sector construction projects have resumed expansion for the first time in 6 quarters at 3.3% compared to a drop of 5.7%intheprevious quarter. (Government construction projects resumed expansion for the first time in 4 quarters at 0.1%comparedto a drop of 9.8% in the previous quarter, while state enterprise construction projects has continued to increase for thethird consecutive quarter at 11.5%, increasing from the growth of 4% in the previous quarter). Private sector construction projects have continued to expand for the second consecutive quarter at 1.9%, compared to an increase to2% in the previous quarter, following the expansion of residential buildings (condominiums and single-detached houses) and non-residential buildings (commercial buildings and factory buildings). Meanwhile, other construction projects havedeclined for the fifth consecutive quarter, especially the construction of the MRT project. Construction material priceindex has risen for the 9th consecutive quarter by 3.5%, in pursuit of the increased concrete price index (increasingby16.6%), tiles and sanitaryware (increasing by16.2%) andready-to-use plastic (increasing by12.7%).

The private sector construction has continuously expanded for the second consecutivequarter at 1.9%, compared to 2.0% in the previous quarter, in relation to the expansion of the residential construction (e.g. condominiums and single-detached houses) and non-residential construction (e.g. commercial buildings and factorybuildings), while other types of construction have been continued to slow down for the fifth consecutive quarter especially electric train construction. The construction material price index has increased for the ninth consecutive quarter at 3.5% in relation to the increase in concrete product price index (increasing by 16.6%), tiles and sanitary products (increasingby16.2%) and ready-to-useplastic products (increasing by12.7%).

In 2022, the construction manufacturing sector declined by 2.7%compared totheexpansion of 2.2% in 2021, whereby the government construction sector declined by 3.4% (government projects decreasedby 6.6% and state enterpriseprojects increased by 3.5%), while private sector construction decreased by 1.2%

Thailand’s Economic Outlook 2023

Thailand’s economic outlook has been forecasted to grow in the range of 2.7-3.7%, withsupporting factors from the recovery of the tourism sector, higher investment in the private and public sectors, continuous expansion of domestic consumption and positive growth of the agricultural sector. In this regard, it has been expectedthat the domestic consumption is going to increase by 3.2%, while the private and public sector investment should expand by 2.1% and 2.7% respectively. The export value in USD should decrease by 1.6%, while the general inflation rate will be inthe rangeof 2.5-3.5%, with the surplus in account balanceof 1.5% of the GDP

The macro-economic policy management in 2023 should emphasize on (1) taking care of debt issues for minor debtors, both for household andSMEs’ debt (2) taking care of the agricultural productionandagriculturists’ income, by determining the measures to accommodate agricultural produce that will be released intothemarket and strengthen the agricultural production value chain, adjust the production structure and strive towards sustainable and organic agriculture (3) maintaining the driving force from export by (i) facilitating and reducingexport-related costs (ii) exporting products to markets with positive economic expansion outlook and high purchasingpower (iii) following up on the global situations and trade terms (iv) developing agricultural products, food and industrial products to be of standard regulated by the importers’ criteria, together with the adjustment of the production industrystructure (v) capitalizing on the Regional Comprehensive Economic Partnership (RCEP) together with expeditingthenegotiation on free trade agreement that has not been finalized and (vi) encouraging the business sector to properlymanage risks to accommodate the exchange rate volatility (4) supporting the recovery of the tourismsector andrelated services by (i) solving the problems and limitations and preparing the tourism sector to accommodate the returnof foreign tourists, as well as considering the financing option and other support measures for entrepreneurs to resumetheir business operations (ii) encouraging high-quality and sustainable tourism (iii) arranging tourism promotion activities and related activities and (iv) encouraging domestic tourism (5) supporting private sector investment by(i) accelerating entrepreneurs who have been approved of with the investment promotion card during 2020-2022 to actuallyinvest especially in the target industries (ii) solving problems that are obstacles to foreign investors and entrepreneurs interms of investment and business operations as well as the issue of labor shortage in the manufacturing sector (iii) executing the active investment promotion measures and facilitating to attract investors in the targeted industrial andservice groups (iv) encouraging investment in the Eastern Economic Corridor (EEC) and other economic development areas (v) developing high-skills labor to accommodate the industry that emphasizes on investment in the development of economic area with intensive technological and innovation emphasis. (6) driving government spending and publicsector investment together with the increase in financial allowance to accommodate risks from uncertainty inthemedium term and enhance economic growth (7) monitoring and evaluating the global economic and financial volatility and (8) maintaining thedomestic economic and political environment.

Source : Office of the National Economic andSocial Development Council

Construction Industry Outlook

The construction business in 2022 was prone to risks from higher cost in terms of transportation and construction materials from the Russia-Ukraine war that has led to the increase in oil and core construction material prices especially steel and cement. In 2023-2024, the business tends to grow in relation totheoverall construction investmentvalue, whichis expected to increase at the average of 4.5-5.5% peryear

The key driving factors are the government’s large-scale construction investment projects, especially ones related to the development of the Eastern Economic Corridors (EEC) that has a tendency to accelerate toachieve the transportation infrastructure execution plan phase 2 in the EEC area (2022-2026). Meanwhile, the privatesector construction investment projects both for residential and real estate projects for commercial purposes tendtogradually pick up in relation to the improvement of purchasing power, from the economic recovery and infrastructure. Furthermore, major contractors have more opportunities to take on construction projects in neighboring countries, wherethere is continuous recovery of the economyand infrastructure investment.

Krungsri Research’s Outlook

In 2022-2024, revenue for contractors focusing on the government’s large-scale projects has a tendency to increase continuously in relation to the government construction investment, while revenue for contractors focusingonprivate sector projects is still rather low in 2022beforegradually improvingin 2023-2024.

Large-scale civil engineering construction contractors: It has been forecastedthat their revenue will increase following the acceleration of the government’s infrastructure investment projects. Revenue for large and medium-sized contractors should continue to increase as they are equipped to participate in the biddingandhave the potential to manage large-scale projects, both for the government’s continuous investment endeavors suchas electric trains, parallel-track trains, motorways, and megaprojects that are connected to the EEC area, including other basicutility projects that havegrowthpotential.

General residential project construction contractors: These are high buildings andlarge-scale buildings, whereby the revenue outlook is improving in 2023-2024, though revenue has been stable in 2022from the burden in high oil price and construction material costs. It has been forecasted that the revenue for large andmedium-sized contractors will recover first, especially ones that focus on mixed-use projects, with continuouslyincreasing backlog. Besides, major contractors have more opportunities to take on construction projects in neighboringcountries especially residential projects, commercial buildings and industrial plants, where we can expect higher investment in relation to the recovered economic outlook. The revenue for small-scale contractors tends to slowdowndue to slow recovery of small-scale projects, coupled with the limitations in cost management and labor shortage that may affect the financial liquidity and operating results for these contractors

Fundamental Information

During 2012-2021, the overall construction investment value represents 8.1% of the gross domestic product (GDP) (figure 1), whereby the majority are domestic projects, which can be categorized into 2 types based onthehirers;public andprivate sectors. The proportion of investment value in 2021 was 59.41% (figure2).

Public sector construction projects: The majority are infrastructure investment projects, accounting for 82% of the total government construction value. The rest are the government’s buildingconstruction projects (16%) and government officers’ residential buildings (2%). Major contractors are usually at anadvantage in taking on government projects, given their experiences, special expertise, financial potential andthedevelopment of construction technique and technology that has continuously been improved. Meanwhile, SMEcontractorsusually get to take onassignments in a sub-contracting format.

Private sector construction projects: These are mostly residential projects, accounting for 52% of the total private sector construction, while the rest are construction of industrial plants andcommercial buildings (20%), and others (28%) such as hotels and hospitals (2020 data by the Office of the National Economic and Social Development Council). The private sector construction outlook depends on the economicconditions, investment confidence, political stability, infrastructure investment and the government’s economic stimulus policy.

In the past, Thai contractors have mostly expanded the customer base to overseas market (mostly for major contractors) especially in neighboring countries such as Cambodia, Lao PDR, Myanmar and Vietnam(CLMV) as these countries are accelerating the development of infrastructure and facilities such as highway networks, trains,power plants as well asbuilding construction/repair/decoration works,buildings andaccommodations.

There are about 100,000 construction contractors that have registered their businesses as juristic persons (Department of Business Development 2020), with only 691 major entrepreneurs (accounting for only 0.7% of the total number of entrepreneurs). However, the revenue of major entrepreneurs represents about82%, while medium-sized andsmall-sized businesses represent 14% and 4% respectively. In this regard, the top3entrepreneurs in the Stock Exchange with the highest revenue are Italian-Thai Development PCL, Sino-Thai Engineeringand Construction PCL and Chor. Karn Chang PCL, with the combined market share of 17% of the large business groupand occupying the market share of 67% of the 10 construction companies listed in the Stock Exchange of Thailand. (Figure3data is basedon2021)

In this regard, the evaluation of the construction market outlook takes into account:

1) The market aspect: This means the opportunity to recognize income of entrepreneurs mostly depends on the economic and political conditions, plan and progress in the investment of private and government construction projects, as well as the investment regulations in each country that may facilitate or pose an obstacle tothebusiness.

2) The cost aspect: This means the changes in construction material prices and labor costs (currently the Thai construction sector is encountering labor shortage both in terms of the quantity and skills, leadingtoproductivity being lower than the wage), which affect the business’s profitability. The cost structure of a constructionbusiness is comprised of (1) construction material cost; steel, concrete, cement and others; accounting for 60% of the total cost (2) labor cost;20% and(3)other expenses;20% [2] (figure4).

Past Situations

The construction business has continuously been expanding in 2021, considering fromthe investment value in the construction sector that expanded by 4.1% YoY, equivalent to the value of 1,364.8 billion Baht (figure 5). Supporting factors are government construction projects (accounting for 59% of the total construction sector), especially large-scale construction projects such as the development of Map Ta Phut industrial port phase 3 and other continuing projects such as 3 new train routes; MRT Pink, Yellow and Orange lines, while the privatesector investment value has not changed much from the previous year, from the shrinkage in the residential market due tothe economic slowdown and impact of COVID-19, leading to stricter control of the transmission, despite the slight recoveryof non-residential investmentprivate sector projects, especially factories in industrial estates.

Public sector construction projects valued at 804.5 billion Baht, expanding by 6.4% (figure6). Major supportingfactors are continuous investment in large-scale infrastructureprojects

Infrastructure construction projects (accounting for 81% of the entire government construction projects) has an increased investment value of 5.8%, driven by key projects; (1) 3 newtrain routes comprising of (i) MRT Orange Line project; Thailand Cultural Center-Minburi (Suvintawong), with the constructionprogress of 89.5% (ii) MRT Yellow Line; Ladprao-Samrong, with the construction progress of 88.7% and (iii) MRTPinkLine; Kaerai-Minburi, with the progress of 83.9% (as of December 2021). In this regard, these 3 lines should commenceoperations within 2022, and (2) the development of Map Ta Phut industrial port phase 3 in the EEC area (constructioncommencedin July 2021).

Other construction projects are government office buildings (accounting for 17%) andresidential projects (2%). The investment value expanded by 8.4% and 14.3% respectively, from the expediting of several projects to deliver as contracted. Compared to the same period of time in the previous year, there was a shrinkage of themarket due to delays of certain projects during the spread of COVID-19. Mostly they are operated by mediumor small sized contractors, and many of them have runinto financial liquidity issueor labor shortage in the firstplace.

Private sector construction projects valued at 560.3 billion Baht, expanding by only 0.9% (figure7), resulting from the shrinkageof the residential construction projects>

Residential project construction (accounting for 50% of the entire private sector construction value) reported a lower investment value by 1.8% in 2021, in line with the number of newly registeredaccommodation projects in Bangkok and vicinity, and 4 regional provinces (Chiangmai, Chonburi, KhonkaenandPhuket) that decreased by 14% (figure 8), due to (1) slower pace of real estate development for new projects bothfor horizontal and condominium projects, but instead focusing on liquidating stock to maintain liquidity and cash flowthrough various sales strategies such as extra discounts, let for rent, free stay allowance for 1-2 years, (2) weaker purchasing power due to the economic slowdown, coupled with the financial institutions’ prudence in loan considerationdespite the low level of interest rate compared to the past and (3) emergency laws enforcing a temporary halt inconstruction (June 28-July 24, 2021) for construction camps in certain areas, especially Bangkok and vicinity. Foreignlabor and those from upcountry vacated the construction areas and have not been able to come back fully, causing manyprojects to bedelayed.

Non-residential construction projects are commercial buildings, service andtransportation-related projects and industrial plants. The investment value increased by 3.8%, partially because of thesupport from the increased investment in factory construction and office buildings in industrial estates especially intheEEC area to accommodate production for export that still has a positive outlookfor continuous expansion

The construction material cost index in 2021 increased by 8.0%, compared totheshrinkage of 1.8% in 2020 (figure 9), from the increase in price index for almost all materials especially steel and steel products (accounting for 23% of the entire construction material cost). The price increased by 33.9%; the highest compared to other prices, resulting from the increase in imported products used in manufacturing such as metal scrapandbillet, in relation to the global steel price and the decrease in Chinese demand. Meanwhile, cement price (accountingfor 13%) decreased by 1.1% due to the not yet recovered private sector construction sector (the quantity of cement usedintheprivate sector construction projects accounts for 60%).

In 2021, revenue of construction companies listed in the Stock Exchange of Thailand(top10 companies with the highest revenue[3]) decreased by 6.6%, whereby the net profit margin declined to 0.7% from 1.5%, due to the impact of slower development of new projects of real estate developers and the temporary constructionsite closure to control the spreadof COVID-19, causingcertain projects to bedelayed. (figure10)

For the first quarter of 2022, there was a shrinkage in the construction sector fromthe impact caused by a significant increase in cost, from the Russia-Ukraine war that broke out in late February 2022, causing a certain portion of oil and construction material (especially steel) supply to disappear from the market. This is because Russia is the world’s second largest oil exporter (2020), while both Russia and Ukraine’s total steel export represents 12% of the entire global steel export volume (about 47 million tons). The Thai construction business has encountered a significant increase in construction material and transportation costs, whereby steel price; the coreconstruction material, increased exponentially in the first quarter of 2022; 27,446 Baht/ton for rebar (+25.3%YoY), 36,046 Baht/ton for c-steel (channel) (+37.5% YoY), while the concrete and cement price index increased by 5.7% and4.8% respectively (steel, concrete and cement represent 23%, 16% and 13% of the construction business’ cost structurerespectively). From the mentioned pressure on costs, some projects ran into financial liquidity problems, worseningtheshortage of labor issue from the spread of COVID-19 that has not yet recovered. Some projects had to delaytheconstruction investment, leading to the investment value in the first quarter of 2022 being 340 billion Baht, decreasing by 3.7% YoY. The public sector construction projects valued at 210 billion Baht and the private sector projectsvalued at 130 billion Baht,decreasing by2.1% YoY and 6.1% YoY respectively.

Industry Outlook

Krungsri Research forecasted that the construction business has a tendencyof continuous growth during 2022-2024, given that the construction investment is likely to increase, mainly drivenbythe government’s large-scale investment projects, especially ones related to the EEX and the transportation networkexpansion project, especially railways and highways, including the investment of private sector construction projects, both for the residential projects and real estate for commercial purposes with the tendency of gradual recovery followingthe economic conditions.

However, contractors would still encounter the high oil price and construction materials in 2022 due to the impact from the Russia-Ukraine war, whereby contractors were forced to absorb the cost. Small businesses are more prone to liquidity issue and abandoning the work, and a lot of government project contractors still have not been reimbursed the K factor or escalation factor (Source: Thai Contractors Association, Than Settakij, April 2, 2022). The mentioned outlook suggested that the total construction investment value in 2022 would not expand muchat 3.0-3.5% before expanding to 4.5-5.5% in 2023-2024(figure11).

The government construction investment during 2022-2024 has been forecastedtoexpand at the average of 5.0-6.0% per year, with the most critical driving factor being the continuous investment inlarge-scale projects to achieve the goal in accordance with the urgent execution plan on the transportation sector B.E.2562,under the strategic developmentof the Thai transportation system inthe next 20years (2018-2037) (figure12).

Large-scale construction projects linked to the EEC area according to the EasternEconomic Corridor (EEC)’s transportation infrastructure execution plan phase 1 (2017-2021) have been expectedto commence in 2022 both for the railways and highways, for instance, (1) high-speed train connecting 3 airports (DonMuang – Suvarnabhumi – U-Tapao), whereby the first phase will start with Suvarnabhumi – U-Tapao interval (2) development of Laem Chabang Port phase 3, whereby the phase 2 development plan (2022-2066) features the objectiveof enabling Thailand as a commercial, transportation and logistic hub of the region, as well as accommodating growthof the EEC in the future. Initially, there are 131 projects, with the total investment budget of 386,565 million Baht, wherebyinvestment in railway and mass transit systems represent the largest portion or 43% of the total investment budget (figure13).

Key projects in other areas, for instance, the development of a passenger terminal – an extension phase in the north,Suvarnabhumi Airport (terminal 2), MRT SouthPurple Line project (Taopoon- Ratburana), Denchai – Chiang Khong parallel-track train and Khonkaen – Nongkhaiparallel-track train, etc. (table4).

The private sector construction investment value has a tendency of gradual recoveryat the average rateof 3.0-4.0% per year during2022-2024,drivenbythese factors:

The construction of housing projects has an average growth projection of 10% or about 70,000unitsper year during 2022-2024(figure14). Real estate developers have tendencies to increase theproportionofhorizontal projects, especially in suburb areas, to accommodate demand for those who areactually looking for accommodations, supported by the government’s expansion of the transportation network systemsuch as an extension phase of the MRT project and motorways that facilitate inter-city transportation. Meanwhile, condominium construction should improve in certain areas especially at the city center and certain MRT lines, wherebythe majority of which will be in favor of major contractors. However, the overall construction investment may slowdownin 2022 due to the increased cost from oil price and construction materials, despite the entrepreneurs’ chance to hand over the cost burden by increasing accommodation price, which can be done with certain limits due to a slowrecoveryof purchasing power. In this regard, the Home Builder Association has announced that the housing price may increase by5- 8% from April2022 onwards.

Construction of factories and industrial estates can capitalize on the advantage of the government’s acceleration of infrastructure project investment especially in the EEC area. Entrepreneurs inindustrial estates have the plan to invest in new industrial estates and develop the land for sales and constructionof factories on a continuous basis to accommodate the expansion of investment of targeted S-Curve industries, for instance, Nong Lalok Industrial Estate in Ban Khai district, Rayong, which is expected to take about 2 years to develop the areaand commence operations; Apex Green Industrial Estate in Plaengyao district, Chacheongsao (jointly operated withtheIndustrial Estate Authority of Thailand or IEAT), which is expected to commenceoperations in 2023.

The construction of commercial buildings can be categorized into (1) retail space, which has the tendency to expand in relation to the project developers’ investment plan (figure 15) to accommodate therecovery of private sector consumption and the tourism sector and (2) office building construction, which is expectedtoincrease following the recovery of business sector investment. In this regard, the construction of commercial buildings nowadays is usually in a mixed-use format that can cater to modern and urban lifestyles. Projects with the investment plan during 2022-2024 in the construction phase and pre-construction phase have a combined space of approximately1million square meters (figure5).

The overall construction material prices in 2023-2024 are expected to decreaseslightly from 2022 but will still be on the high side (figure 16), mainly due to the (1) the increase in energy price that affects manufacturing and transportation costs. However, when the economy and investment are slowly recovering, major contractors are at an advantage of having negotiating power with the manufacturers/construction material suppliers, possibly preventing the construction material prices from increasing too high, and (2) the increase in importedrawmaterial costs according to the global market such as steel scrap and billet, causing steel price to remain highinaccordance with the global price outlook, despite a slight improvement in excess supply scenario fromreduced steel production capacity in China, (3) the recovery of the construction sector that supports construction material demandespecially cement and construction steel, and (4) government measures that encourage the use of products (constructionmaterials) that aredomestically produced via the “Made in Thailand”procedures.

Adaptive Measures for Contractors

Major contractors are at an advantage from their high negotiating power withmanufacturers/construction material traders, as well as the continuous sourcing of business channels to maintain revenueand profitability, for instance, electric train system management. In terms of investment, the emphasis will be ontheincorporation of automated machinery to minimize the risk concerning labor shortage, shorten construction lead time andcorrect errors during the construction such as BIM (Building Information Modeling) Prefabs (Prefabricated BuildingComponents) (figure17).

Medium and minor contractors; the majority of which are family businesses, withlimited capital, hence lower negotiating power. They usually subcontract from major contractors, especiallythegovernment’s mega projects, and they also seek to increase revenue stream from building maintenance and improvement works.

With regards to the opportunities to take on construction projects in overseas market, Thai contractors have higher chance of getting more projects in CLMV countries, where there have beencontinuous investment in the infrastructure projects to accommodate economic growth and urbanization, leadingtoconstruction of industrial plants, office buildings and residences, especially Vietnam, where there are intensiveexpansions in the infrastructure and industrial estate projects, in response to the foreign direct investment (FDI) tendencythat is continuously on the rise (figure 18), especially from China. However, the majority of opportunities are limitedtolarge contractors, given their readiness in capital, technology and investment channels that stemfrombusiness connections with local investors.

However, acquiring construction works in CLMV countries might impose regulatoryrisks in terms of employment that may not align with the international standard, uncertain agreement conditions, political instability and competition with other foreign contractors. In order to mitigate such risks, Thai contractors should lookfor business alliances in the CLMV supply chain, for instance, local real estate developers/contractors, and local employment agencyin order to have an openchannel to continuously acquirenew assignments

Challenging factors that may limit growth of the construction business andcontractors’ revenueduring 2022-2024 are:

The oil price and construction material cost have remained high resulting fromtheUkraine war, forcingcontractors to absorbthe costburden

The inventory level has remained stably high (figure 19), while newdemandstill hasnot recovered, causing the investment in new residential project construction of theprivate sector to be rather low.

Shortage of labor resulting from the impact of COVID-19 can be an obstacle for project delays. In this regard, foreign construction labors may have not come back to Thailand like it used to be before COVID-19, while a certain group of labor have travelled back to their hometown and have not come back to jointhelabor market in Bangkokandvicinity. (Figure20)

[1] K factor is the index used to measure changes in the project value at the time that the contractor opens the bidding envelope, compared to the deliverylead time in each submission, in order to calculate the compensation amount for contractors to alleviate the impact from the fluctuation of constructionmaterialspricesduring theproject executionperiod. (Source: TradePolicyandStrategy Office, Ministryof Commerce)
[2] Calculated from major entrepreneur’s cost structure and the production-productivity factor table made by the Office of the National Economic andSocial Development
[3] Namely 1) Christiani & Nielsen (Thai) PLC. 2) Power Line Engineering PLC. 3) Pre-Built PLC. 4) Syntec Construction PLC. 5) Unique Engineering And Construction PLC. 6) Nawarat Patanakarn PLC. 7) Ch. Karnchang PLC. 8) Sino-thai Engineering And Construction PLC. 9) Italian- Thai DevelopmentPLC. and10) ThaiPolyconsPLC.

Source: Krungsri Research

Competitive Environment and Potential

The competition from the numbers of companies in each business sector may reflect thecompetition situation in the market at certain level that the construction business for the SMEs may be the most aggressive. It is because of there are less barriers of entry due to fewer funds for investment, technology, expertise, andmanagement when it is compared with a large contractor. Despite there are some obstacles in terms of the regulationandstandards of business operation, the entry into the market is no difficult. Thus, there are many small contractors intheconstruction business.

The market for the large entrepreneur is of less competition due to high barriers of entry sincethe market requires a large amount of investment fund, more experience and expertise in particular areas. On the other hand, the competition in the market for middle entrepreneurs may have competition of which depends on volumes in eachsituation. When the economy is going well, the construction projects are quite a lot and the competition is not quiteaggressive. However, if the economy is slowdown, the construction projects decrease in numbers, leading to serious competition since the numbers of the contractors have not changed. In addition, if there are large contractors inthecompetition, the competition is even more aggressive which may lead to theprice war of the construction fees.

Moreover, when the competition is considered by the types of work from the government andthe private sector, it is found that the construction market of the government sector, the government sector has its procedure of pre-qualification to select appropriate contractors based on standards such as minimumfinancial status, minimum equipment and machine, and minimum personnel. Also, the market of the government’s constructionhas clearly classified the project’s value. The large contractors will involve in large projects only. Thus, the high valuegovernment’s projects are always with the large contractors, reflecting a mild competition when it is compared withthecontractors in other markets.

In terms of the private sector construction market, although most of the construction companies are listed companies in the Stock Exchange of Thailand, the competition in the private sector construction market is quiteaggressive, after consideration of the number of the projects that the contracts have already been signed, it is foundthat the distribution of assignments has been quite thorough, both for condominium and housing projects. Duringtheeconomic crisis, the private sector construction market usually encounters high competition which leads to price cuts for survival.

Hence, the demand for construction services particularly in civil construction, design, procurement and installation of MEP for new projects and old buildings under renovation has an opportunities to growrespectively. The contractors who have strong financials and reputation of completion of quality of works will have goodpotential to acquire more businesses as they are more flexible in taking on large, medium and small-scale projects. Largecontractors in Thailand including the Company usually have strong negotiating power with suppliers of materials andequipment to obtain better price and conditions. The company’s good track records and continued development in qualityof works during more than 35 years in this industry is very significant part to encourage its competitiveness and create theopportunities to grow further and create stronger confidence for customers. This can be seen from the Company’s past performance in controlling and managing projects to complete on time within the quality required by customers, as well as the Company’s ability to generate profits over the years. In this regard, since the Company’s business covers customer bases in the construction sector for accommodation, commercial and industrial construction, which are newprojects, renovation or improvement of the building engineering system for old factories, the negative impact fromany particular business sector has a rather limited impacton the Company compared to other competitors,

Apart from the competition among the Thai contractors, the foreign contractors throughits direct investment and joint ventures with/Thai partners are also main competitors. The determination of the market shareis quite challenging as no organizations have compiled this data. Besides, compiling the contractor information by their expertise, experiences and work quality is also difficult, as the installation works to make sure the systemcan operate is something that is quite easy for experienced engineers, but the quality, neatness and the lifetime of the system, as well as the ability to prepare the system is something more complicated, and each contractor has different capacity, which takes time to prove in order to categorize their expertise.

In 2022, the Company had participated in several bid rounds for public and private sector construction projects and won 10 projects altogether, with the total value of 1.8 million Baht, which was lower thanthetarget due to the outstanding works on hand valued at over 10 billion Baht from 2021. After revenue realized in 2022 of 7.84 billion Baht, the backlog at the beginning of 2023 stood at 15.7 billion Baht that will be realized in 2023 andthefollowing years. Besides, the Company also planned to participate in large infrastructure project bid rounds with major construction contractors in Thailand and overseas, as well as taking on assignments from major private sector customers, wherebyadditionalprojects shouldbe acquiredin 2023 of about 12.2 billion Baht.

In 2022, the increase in core construction material costs especially steel has greatly affectedtheCompany’s cost. However, the situation improved at the end of 2022. It has been forecasted that this portion of the cost can be controlled more effectively in 2023 and 2024, enabling the Company to make profit again. The Company has alsoimproved the effectiveness of work procedures, by devising the strategies of all departments to followthe ESGframework, as the Company is aware of the importance of all stakeholders in order to ensure stable and sustainablebusiness operations. Over the past 30 years, the support from customers, suppliers, executives and staff members, as well as government bodies and private sector organizations, havebeen an important force for the Company’s advancement andprosperity.

Hence, the Company strongly believed that the operations in 2023 will be efficient andeffective, with no delays for the projects, as well as with cost and expense control to achieve the desired profits. TheCompany emphasizes on working as a team with concrete performance measurement, and also supports all staff members to take part in taking care of the society and environment within and outside of the organization, to play a part insupportingthe Companyto move forwardin a sustainable manner

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