Threats
The threats facing KTech are real and substantial. These include:
• The political situation in Thailand has resulted in significant fall in investment, which is generally acknowledged as contributing to a slowdown in the economy. This slowdown is already affecting the construction industry, manifesting itself through intensifying competition leading to a tightening of construction margins and a significant reduction in the availability of projects. For the past six months some of our competitors have been bidding work at 0% margin, and in some cases negative, in order to maintain workload.
• The economic situation is expected to continue through 2016 with any significant recovery not likely to occur before then. As such, the domestic market opportunities for the construction business will continue to be tight.
• The property sector is in decline. Over the past months virtually all property companies have reported declining sales and are forecasting significant reductions (up to 15%) in turnover for 2015. Within this, a number of property companies are reducing even further (up to 35%) their investment in the condominium market, which is KTech’s core business.
• The decline in prospects of the construction sector has led to a tightening of bank liquidity in the sector. One bank has expressed the view that they will not lend to the sector at this time, and it is expected this is a common view in the banking sector. This in turn causes a reliance on equity cash, of which there is insufficient available at the moment.
• The continuing difficulties of the property and construction sector will reflect in the performance of this sector companies on the Stock Exchange of Thailand. Should this sector continue to have difficulties, there is some prospect that SEC and or SET may delay and potentially deny KTech a resumption of trading until the position is clearer.
• A number of senior staff have left the company without good feeling. It is probable that these staff will cause damage to KTech reputation in the market. The departure of the senior staff has been accompanied by a reduction in junior technical staff as these are “poached’ to other companies.
• A significant number of current projects currently in hand are projected to be complete within 2015 and without substantial increase in new projects in the next five months; monthly turnover is forecast to reduce from approximately Bt 165 million in the first half of 2015 to less than Bt 50 million in 2016. This is insufficient to support company overheads.
There is little doubt that the Thai domestic market will continue to be plagued by the political uncertainties and diminution of the government’s ability to invest in construction projects in the face of the current economic status of Thailand. It will take some significant time to turn around and KTech must have the financial capacity to survive this period of business contraction.