Govt projects seen lifting listed builders

Source : Business Times - 20 Jan 2009

SEVERAL contractors listed on the Singapore Exchange are expected to benefit from the government’s plan to step up construction of smaller public sector projects, analysts said.

Analysts also issued fresh ‘buy’ or ‘neutral’ calls on several construction stocks late last week.

On Jan 14, National Development Minister Mah Bow Tan said that the government would be rolling out public sector projects of up to $50 million each to help the industry weather the economic downturn. The projects will come onstream from 2009 and will be targeted at small and medium-sized construction firms. They will also include some of the $4.7 billion worth of projects deferred earlier.

The government will also introduce several credit assistance measures to help construction firms facing a credit squeeze and cash-flow problems.

For instance, public-sector agencies will make frequent, prompt and full progress payments for completed and certified building jobs.

The amount of security deposits for government construction jobs will also be lowered from 5 per cent to 2.5 per cent or less. Details will be announced on Budget Day on Jan 22.

Analysts said that the measures would ease some of the problems now faced by smaller contractors.

‘Earnings visibility is exceedingly poor beyond 12 months, even for the larger firms. However, with the government pump-priming, much uncertainty is removed,’ said CIMB analyst Lawrence Lye.

‘We continue to like the sector on the back of continued infrastructure spending, in particular the following companies which are leaders in their areas of expertise.’

He issued ‘outperform’ calls on four construction stocks on Jan 15 - CSC Holdings, Tat Hong Holdings, Tiong Woon Corporation and Yongnam Holdings.

DMG & Partners Securities analyst Selena Leong, likewise, said that the measures announced by the government may be a safety net for the smaller construction firms that are ‘likely to be experiencing significantly higher cost of borrowings or even having difficulties obtaining funding for their working capital and asset enhancement needs’.

In particular, BBR Holdings is expected to benefit as its exposure to the public sector is around 76 per cent based on its order book as at November 2008, she said.

She issued a fresh ‘neutral’ call on BBR on Jan 15, and also has a ‘buy’ call on Tiong Woon.

Credit Suisse on Jan 16 issued an ‘outperform’ call on Tat Hong, and ‘neutral’ calls on Hong Leong Asia, Tiong Woon and Yongnam.

‘We maintain that the construction sector will remain a pillar of strength in 2009. Tat Hong is our top pick, given the company’s operational scale, clear growth strategy, balance sheet strength, undemanding valuations and liquidity,’ said analyst Su Tye Chua.