Singapore construction stocks mostly higher on sector's growth trajectory

Singapore construction stocks mostly higher on sector's growth trajectory UPDATE
10/4/2007 4:13:00 PM

SINGAPORE (Thomson Financial) - Shares of most Singapore construction companies were firmer Thursday, with the industry's uptrend expected to continue, supported by various aspects of economic growth.

The industry's bright prospects are not only due to the property boom increasing the amount of construction work.

"The industry has several powerful drivers, including population growth, economic restructuring to attract higher value-added industries, integrated resorts, the development of Singapore into a choice convention destination and the development of a wealth-management industry," CIMB-GK Research said in note to clients.

Singapore has plans to increase its population by 2 million to 6.5 million in the next 10-20 years.
"Population growth is an important driver for construction as housing, amenities, public and private infrastructure would have to keep up with population growth," CIMB-GK said.

For example, 3 billion Singapore dollars has already been set aside for road development to cater to the increased population, it said.

Other developments expected to spur construction activity are petrochemical investments on Jurong island and in Tuas, residential projects on Sentosa island and new sports facilities in Kallang.

As for the two casino resorts that are due to open by 2009 or 2010, CIMB-GK estimates about 21 million tonnes of construction materials will be transported while they are being built.

CIMB-GK is keeping its "overweight" call on the construction sector.

Its top picks are equipment-leasing company Tat Hong Holdings, crane and marine logistics company Tiong Woon Corp and building contractor Lian Beng Group.

Foreign brokerage Goldman Sachs, meanwhile, said it expects a re-rating on the Singapore construction sector "on increased visibility in cycle strength and sustainability, and positive newsflow on contract awards."

Goldman Sachs now expects construction spending in Singapore over the next few years to grow to 57 billion US dollars from its earlier estimate of 55 billion dollars.

"We think the underperformance of the sector relative to the market is unwarranted," Goldman Sachs said in a note.

Among its bets in the sector are specialist sub-contractors Tat Hong Holdings and Yongnam Holdings, noting that these two companies are well-positioned to ride the construction upcycle.

"A slew of contract awards over the next three to six months should provide further upside to the share prices of Singapore construction companies," Goldman Sachs said.

Mega projects such as the two integrated resorts being built -- the Marina Bay Sands and the Resorts World at Sentosa -- along with various infrastructure and residential projects in Singapore will boost the order book of construction firms, it said.

At 3.16 pm (0626 GMT), Tat Hong was up 3 Singapore cents at 2.44 dollars, Tiong Woon up 1 cent at 1.14 dollars and Lian Beng up 5.5 cents at 57 cents. Among other construction gainers, Yongnam Holdings was up 2 cents at 45 cents, CSC Holdings up 1 cent at 36.5 cents, Koh Brothers up 1.5 cents at 46.5 cents and Chip Eng Seng Corp up 1.5 cents at 82 cents.