According to some analysts, a number of contractors that are registered on the Singapore Exchange are likely to gain advantage from a plan proposed by the government to boost the construction of minor public sector projects. Late last week, analysts issued fresh “neutral” or “buy” calls on various construction stocks.
National Development Minister Mah Bow Tan announced last January 14 that public sector projects worth $50 million each are set to be rolled out by the authorities in order to aid the industry during the economic downturn.
The projects are set to commence this year, with medium- and small-sized construction firms authorised to manage the projects, which will also cover the previously deferred projects worth around $4.7 billion.
Some credit assistance measures will also be introduced by the government to assist those firms dealing with cash-flow problems, as well as credit squeeze. For example, public-sector agencies are to be required to make frequent, timely and full-progress payments for certified and completed building projects.
Security deposits will also be reduced from government construction jobs to 2.5 percent or less from 5 percent. Further details are set to be announced on January 22, during the Budget Day. According to analysts, the measures are expected to lessen the setbacks being encountered by minor contractors.
“Earnings visibility is exceedingly poor beyond 12 months, even for the larger firms. However, with the government pump-priming, much uncertainty is removed”, CIMB analyst Lawrence Lye said.
“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”, Mr. Lye added.
On January 15, Mr. Lye issued “outperform” calls on a number of construction stocks, including Tiong Woon Corporation, Yongnam Holdings, CSC Holdings and Tat Hong Holdings.
Selena Leong, DMG & Partners Securities analyst, also mentioned that the measures imposed by the government may also serve as a safety net for minor firms, which are “likely to be experiencing significantly higher cost of borrowings or even having difficulties obtaining funding for their working capital and asset enhancement needs”.
Miss Leong stated that the BBR Holdings in particular is anticipated to gain advantage due to its 76 percent exposure to the public segment, based on the firm’s book as of November 2008. On January 15, BBR received a fresh “neutral” call from Ms. Leong, while Tiong Woon received a “buy” call as well.
On January 16, Credit Suisse issued “neutral” calls on Tiong Woon, Yongnam and Hong Leong Asia, as Tat Hong receives an “outperform” call.
“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,” analyst Su Tye Chua said.