Construction Sector
CIMB Research, Jan 31
IMPACT of Land Transport Review: In the last part of the review, the government continues to emphasise one thing: building up the public transport system in Singapore as a viable alternative to the car. Congestion is to be addressed urgently as the car population had increased by 10 per cent between 1997 and 2004, while the number of car trips had expanded 23 per cent over the same period. Congestion levels have risen 25 per cent since 1999.
Road development plans: On the heels of the expected full completion of the Kallang-Paya Lebar Expressway in September 2008, a proposed $2.5 billion Marina Coastal Expressway will be built, by 2013, to support the development of the Marina Bay area. The government has also approved a budget of $7 billion-$8 billion for a new 21 km North-South Expressway, to be built by 2020.
Massive $50 billion infrastructure spending till 2020: For road development, a total of $10 billion is expected to be spent over the next 10-12 years, which translates to $0.8 billion-$1.0 billion per year. Added to that rail development of another $40 billion from now until 2020, potential contracts that can be awarded to construction companies are significant.
Construction beneficiaries: Typically, large projects in Singapore are awarded to established foreign contractors from Korea, Japan and China. However, because of the current shortage of construction companies, we believe some of the local construction companies with relevant track records could stand to benefit.
Recommendations: We maintain our 'overweight' position on the Construction sector, with 'outperform' ratings for the following stocks: OKP (target price $1.21), Lian Beng (target price $1.67), Hong Leong Asia (target price $5.54), CSC Holdings (target price $0.57), and Tat Hong (target price $5.00).Sector - OVERWEIGHT
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