Construction firms ride on previously won contracts

Source : Business Times – 31 Aug 2009

THE construction industry was the only sector of the economy that continued to grow in the second quarter. And some listed contractors here, riding on contracts secured earlier, have reported increased revenues and earnings for the quarter or half year ended June 30, 2009.

But cracks are beginning to show: Other construction companies, hit by the economic downturn, posted weaker numbers than a year ago.

Figures from the Ministry of Trade and Industry show that the construction sector grew nearly 19 per cent year-on-year in Q2 2009 – the sole bright spot amidst an overall 3.5 per cent decline in GDP in the quarter.

The positive growth is expected to continue into the second half of the year, with the Building and Construction Authority forecasting total construction sector demand of $22-28 billion this year.

On the back of the uptrend, several listed contractors reported higher revenue and earnings for the recently-ended quarter.

Koon Holdings, a civil engineering, reclamation and shore protection specialist, reported a net profit of $4.7 million for the six months ended June 30, 2009 – a turnaround from a net loss of $3.5 million in H1 2008. The surge in net profit was fuelled by a 27 per cent increase in revenue to $70.1 million in H1 2009.

BBR Holdings likewise reported better-than-expected results in Q2 2009. Revenue came in at $53.8 million, down 41 per cent from $91.7 million in Q2 2008. This was mainly attributable to substantial completion of a few key construction projects in Q2 2009. And net profit declined a milder 12 per cent year-on-year to $1.8 million in Q2 2009 on the back of lower contributions from its associates.

But other companies have not fared as well.

Crane operator Tat Hong Holdings reported a 37 per cent year-on-year decline in revenue to $120 million for the three months ended June 30, 2009 (which is the first quarter of the company’s 2010 financial year) as equipment sales plunged 60 per cent because customers remained cautious on spending.

‘The group continued to suffer the impact of the global economic crisis in Q1 2010 as customers remained cautious in their capital expenditure amidst the tight credit environment,’ said Tat Hong chief executive Roland Ng in a statement. ‘Compared with the record performance in Q1 FY2009, group revenue and net profit reflected significant declines.’

Most firms here said that they were cautiously optimistic. Especially upbeat were companies that have secured projects earlier this year, and will now start to book revenues from these projects.

Koon Holdings, for example, has secured three projects worth about $63.0 million so far this year, aided by the influx of public sector construction projects. These projects will contribute to Koon’s topline from the second half of this year, the company said.

BBR also has healthy order books of close to $400 million, which includes the $104.2 million project secured from HDB – a first for BBR. The contract runs until January 2012.