Construction stocks: keep the 3 S’s in mind

Construction stocks: keep the 3 S’s in mind

Tiptoeing gingerly around the sector, think specialised, short and selective


THEY say there’s no business like show business; right now, they are also saying there’s no worse business than the construction business.


The construction industry is being battered from every angle: margins are being squeezed; sand, concrete and steel prices have been taking turns to take off; and residential property sales have turned anaemic.


Steel suppliers further tightened the screws by cutting the lock-in period for steel prices from six months to three months early this year, leaving contractors even more vulnerable to price fluctuations.


It isn’t surprising then that some pundits are ironically predicting the destruction of the construction business.


‘This is a very bad time to be looking for bargains in the construction industry. It’s in bad shape and is the worst hit by inflation,’ says an analyst who does not want to be identified.


Other analysts, however, are decidedly bullish on the industry and insist that all builders cannot be tarred with the same brush.


‘Investors are not able to differentiate between specialised and integrated construction firms. The former have a lower risk profile,’ explains CIMB analyst Lawrence Lye.


Investors should bear in mind the three S’s when tiptoeing around the minefield of construction stocks: think specialised, short and selective.


Specialist companies involved in specific parts of a construction project may be better placed to stay out of the crossfire between suppliers and the main contractors that attempt to do everything.


‘We would recommend investors reduce their exposure to integrated construction companies,’ Mr Lye says. ‘These companies have large order books and stand a higher risk of margin erosion.’


Instead, he suggests specialist firms with low exposure to construction material costs, like Tat Hong and Tiong Woon, both of which are crane-leasing companies.


With commodity prices being contractors’ Achilles heel, firms with shorter- term contracts are better bets, like foundation engineering firm CSC Holdings, according to Mr Lye.


‘CSC’s average contracts are short at three to six months, which limits its exposure to fluctuating prices,’ he says.


And while trite, it pays to remember the adage, ‘location, location, location’. Selective locations, in particular.


‘Wealthy buyers tend to be more discriminating, and they will be looking for property in areas like Districts 9, 10 and 11 which are not overbuilt,’ says Mr Lye.


Contractors with projects in such areas will be safer bets, as prices are expected to remain relatively higher.


BBR, a contractor working on a development in Nassim Hill, would appear to fit the bill, especially since the estimated benchmark sale price of a similar unit was $2,200 per square foot in June, far exceeding BBR’s breakeven price of $1,304 psf on the project.


One particular firm that has struck out on all three counts is Lian Beng Group, a main contractor saddled with a large order book of $800 million extending till 2010 and unsold residential properties.


Order books provide an indication of both future revenue and costs. The larger and longer a firm appears to be committed to an order, the larger and more risky its exposure to raw material price increases.


While Lian Beng’s latest projects in Bukit Timah and Emerald Hill are estimated to have higher gross margins, its overall development portfolio remains a risky bet.


‘We are cutting our FY08-10 forecasts for Lian Beng by 11-60 per cent to account for risks in its property development profits, which stem from projects such as Lincoln Lodge and Kovan Road, where benchmark transacted prices have fallen below breakeven costs,’ Mr Lye said in a report this month that downgraded Lian Beng from ‘outperform’ to ‘neutral’.


Kim Eng analyst Wilson Liew begs to differ on Lian Beng, citing the contractor’s advantage in controlling raw material costs because it owns a batching plant for ready-mixed concrete, and maintaining a ‘buy’ recommendation.


Even so, the writing on the wall cannot be ignored. The valuation of the company has been lowered from $1.12 to $0.68 per share by Mr Liew, based on an expected shrinkage of all-important margins.


In addition to its three strikes, Lian Beng also falls into a category of firms that now fancy themselves as property developers as well.


This category also includes the likes of investment holding company Eastern Holdings and is dismissed by CIMB’s Mr Lye as ‘Johnny-come-lately firms that snapped up land in the middle of 2007 when property prices had peaked, right before the meltdown in July’.


‘Reduce exposure to contractors that have turned opportunistic property developers late in the cycle,’ he says. ‘These are likely to be saddled with unsold inventory or expensive land.’


And if you must invest in a giant, go for one that has fluctuation clauses to manage raw material prices, like main contractor Chip Eng Seng.


‘Gross margins for public projects are likely to remain stable at around 5 per cent, as increases in raw material prices will be protected by fluctuation clauses,’ Westcomb analyst Wong Say Tian said in a report this month on Chip Eng Seng. ‘We estimate that public projects account for about 60 per cent of the group’s existing order book.’


While the bottom line may take a beating for some builders this year, it is still clear: investors should avoid construction companies built on sand if they want a solid portfolio.


Source: Business Times

Construction of Solaris has begun

Construction of Solaris has begun


CONSTRUCTION of Phase 2B of Fusionopolis has begun with the ground-breaking ceremony for a 15-storey building called Solaris.


It is being developed by Soilbuild Group — the first private sector developer at Fusionopolis cluster at one-north.


Its $148-million new building will cover :an estimated gross floor area of 540,000 square feet and is slated for completion in 2010. It will house research activities for :infocommunications , media, science and engineering industries.


Trade and Industry Minister Lim Hng Kiang (left), officiating at Friday’s ground-breaking ceremony, expressed confidence that Solaris will attract strong interest.


Already, developments in Phase 1 and 2A of Fusionopolis are attaining full occupancy before their official completion.


“The Fusionopolis cluster … will help to anchor high value economic activities and contribute to the development of Singapore as a knowledge-intensive economy,” said Mr Lim.


Source: Today Newspaper



Soilbuild breaks new ground at Fusionopolis

Soilbuild breaks new ground at Fusionopolis

Phase 2B kicks off with Solaris, a ‘green building’ for creative industries


SOILBUILD Group Holdings staked its claim as the first private developer at one-north business park Fusionopolis yesterday.


‘Following the award of Fusionopolis Phase 2B in April, Soilbuild will develop and lease out its new flagship project Solaris to businesses in the research and development-based science, engineering, infocommunications and media industries,’ Soilbuild executive director Low Soon Lim said at the ground-breaking ceremony yesterday.


Solaris, for the creative industries, is a 15-storey ‘green’ building that is expected to save $500,000 to $700,000 a year in water and electricity charges at full occupancy rates.


With a gross floor area of about 540,000 sq ft, Solaris is estimated to cost about $148 million and will house a mixture of multinational private firms, research laboratories and retail space. It is expected to be completed by the first half of 2010.


Construction of Solaris comes on the back of strong demand for business space in Fusionopolis.


‘With Fusionopolis Phases 1 and 2A attaining full occupancy before their official completion, I am confident that Solaris will receive similarly strong interest,’ Trade and Industry Minister Lim Hng Kiang said at yesterday’s ground-breaking ceremony.


Soilbuild was awarded the project by one-north’s master developer JTC Corporation under a concept and fixed-price tender.


Solaris will be the first of many private developers at Fusionopolis as part of a plan for large private participation as a whole.


JTC assistant chief executive Philip Su said that Phases 3 and 4 of Fusionopolis, expected to be ready by 2013, will also be developed by the private sector. The tender for Phase 3 will be out by this year.


‘While JTC is good at building labs like the ones in Fusionopolis Phase 2A, the private sector is best at building business park space,’ he said. ‘They keep costs down, are more efficient and complete it in a shorter amount of time. JTC should not do what the private sector can do better.’


Phases 3 and 4, with a gross floor area of 50,000 sq m, will mainly comprise general amenities needed to support the businesses in Phases 1 and 2 at Fusionopolis.


Besides Fusionopolis, one-north houses the Biopolis, a biomedical science research and development area, and Wessex Estate, a residential area.


Source: Business Times

Boustead wins $60m deal to build high-security facility

Boustead wins $60m deal to build high-security facility


BOUSTEAD Singapore has clinched a $60 million project to build the first phase of a high-security facility – known as The Singapore FreePort – for the storage, display and trade of the world’s finest collections and valuables.


Shareholders of FreePort – which has been described as a Fort Knox state-of-the-art facility – include the Singapore National Arts Council and the National Heritage Board.


The contract for the facility – for collections and valuables including fine art, jewellery, watches, diamonds, precious metals, antiques, vintage cars, wines, cigars, carpets and confidential archives – boosts Boustead’s order book to $560 million.


The project, which Boustead won through its 91.7 per cent-owned industrial real estates unit Boustead Projects Pte Ltd will be completed in Q4 2009.


The FreePort was conceptualised and designed by Atelier d’Architecture 3BM3 led by Swiss architect Carmelo Stendardo.


It will be directly connected to Changi Airport for the rapid and safe transfer of collections and valuables. With a gross floor area of about 22,500 square metres for Phase 1 (and an additional 24,000 sq m for Phase 2 to be completed in 2011), the FreePort will comprise strong rooms, huge vaults, showrooms, workshops, photo studios and private offices. It will also boast cutting-edge building security technology from Siemens and the latest innovations in environmental sustainability.


Two international contemporary renowned designers – Johanna Graw-under and Ron Arad – have been commissioned to develop the entire external and internal lighting system based on LED technology, as well as the design of the lobby, showrooms and furniture, which will provide the facility an iconic and futuristic environment.


Heralding the arrival of the FreePort, Yves Bouvier, chairman and co-founder of The Singapore FreePort Pte Ltd, said that the FreePort would be the ultimate facility to house the finest world collections and would strengthen Singapore’s reputation as one of the world’s leading financial centres.


‘With a round-the-clock free trade zone made accessible to non-residents, we will provide the ideal environment for total confidentiality and secure tax-free storage, display and transactions,’ he said.


The latest contract is expected to have a positive material impact on the profitability and earnings per share of Boustead in the current financial year ending March 31, 2009. However, the contract is not expected to have a material impact on the net asset value per share in the current financial year.


Source: Business Times




BOUSTEAD Projects, a unit of Boustead Singapore, has won a $60 million deal to build phase 1 of the Singapore FreePort.


This is an ultra-high security space for storage, display and trading of the world’s finest collections and valuables such as art and antiques. It will be connected to Changi Airport.


The first phase of 22,500 sq m will include vaults, showrooms, workshops and private offices.


Source: Straits Times




CONSTRUCTION firm Lian Beng Group has won three construction and civil engineering deals worth $117 million in all.


Two are construction projects in the private residential sector for Bellerive Condominium and 33 private residential apartments at Emerald Hill Road.


The third is a $30 million civil engineering project to design and build part of the Newater pipeline network.


The deals take Lian Beng’s order book to about $800 million.


Source: Straits Times

Lian Beng wins construction contracts worth S$117m

Lian Beng wins construction contracts worth S$117m


SINGAPORE : Construction firm Lian Beng Group has won three new construction and civil engineering contracts worth a total of S$117 million.


Two of the deals are for construction projects in the private residential sector.


The first contract, worth some S$36 million, is awarded by Sing Holdings for the construction of Bellerive Condominium, a private residential development located at the junction of Keng Chin Road and Ewe Boon Road.


Lian Beng will build 51 apartment units within a 15-storey block and work is scheduled to be completed by July 2010.


A second deal, worth S$50.4 million, is from Lafe (Emerald Hill) Development to construct 33 private residential apartments at Emerald Hill Road, which is due to be finished around the fourth quarter of 2010.


The group has also secured a S$30 million civil engineering project, which was awarded by the national water agency PUB for a part of Singapore’s network of NEWater pipelines.


With these latest contracts, Lian Beng’s order book stands at about S$800 million. – CNA/ms


Source: Channel NewsAsia