DJ MARKET TALK: Singapore Construction Faces Rising Risks -CIMB

06/06/08

DJ MARKET TALK: Singapore Construction Faces Rising Risks -CIMB

0110 GMT [Dow Jones] The Singapore construction sector is facing leaner trading conditions and investors should tread carefully, says CIMB. Broker notes private residential development subdued due to weak buyer demand, with rapid rise in construction costs putting developers' margins under pressure. Broker remains Overweight on Singapore construction sector as a whole, but turns more selective; "we recommend reduced exposure to integrated construction stocks and a switch to specialist construction companies." Adds best placed construction firms are those that have low exposure to higher construction material costs or who can manage their exposure well thanks to short project turnarounds. Says Tat Hong (T03.SG), Tiong Woon (T06.SG), CSC Holdings (C06.SG) are top picks. Latest prices: Tat Hong +0.5% at S$2.19, Tiong Woon +0.9% at S$0.58, CSC +1.7% at S$0.295. (KIG)

BT: Never too early for financial planning

Business Times - 02 Jun 2008

Never too early for financial planning

A survey of tertiary students has shown over three-quarters are clueless about investment options available. CHUA SI MIN, TOR SHI TING, WONG HAN YEE and KONG YOON KEE provide some pointers

IN THE MoneySENSE National Financial Literacy Survey 2005, almost all respondents indicated the importance of starting financial planning early. But the fact is, 17 per cent of them had not started. The survey also found that 17 per cent of respondents believed the best time to start financial planning is during school - yet only 9 per cent of them do so.

To find out why, we conducted a survey of tertiary students.

The 'save' choice

When it comes to planning their finances, most tertiary students can only think of the 'save' choice. Although 76 per cent of our survey sample do not invest, 78 per cent have a savings account. A majority of them put aside less than 10 per cent of their monthly allowance.

At an interest rate of 0.25 per cent, $1,000 in a savings account will turn into $1,002.50 at the end of the year. However, if inflation is at 5 per cent, it would reduce one's purchasing power as the savings interest rate is less than the rate of inflation.

Investing fares better, if one can find investments that offer returns higher than the inflation rate. Many students in the survey knew about the huge potential returns involved in investing, but a large majority do not invest. The two most common reasons for not investing are 'lack of financial knowledge' and 'lack of funds'.

In other words, tertiary students want investments that are affordable and easily manageable. Here are some options.

The Regular Savings Plan (RSP) and unit trusts

RSP allows you to invest a small amount of money, usually monthly, in a fund. The minimum monthly amount starts from as little as $100. There are a few RSP routes but the simplest would be through unit trusts. In a unit trust, your money is pooled with that of other investors and invested in a portfolio of different assets by a fund manager.

Among unit trusts, specialised funds and global equity funds typically manage higher returns at higher risk. Balanced funds carry moderate risk while bond funds and money market funds provide lower average returns at lower risk.

Investing in unit trusts reaps diversification benefits. By spreading your money among different investments, risk is reduced. On average, they provide higher long-term earnings than savings accounts or fixed deposits. Unit trusts can be redeemed any time without incurring penalties. They are managed by professional fund managers and are a good starting point for tertiary students lacking knowledge in direct investment.

Bonds: Singapore Government Securities (SGS)

SGS bonds are marketable debt instruments issued by the Singapore Government through the Monetary Authority of Singapore (MAS). They pay a fixed rate of interest every six months, and the principal is repaid on the maturity date. The minimum denomination is $1,000.

SGS bonds are safe investments as they are guaranteed by the government and investors can lock in a fixed interest rate - typically higher than savings interest rate - over longer periods. They can be sold easily prior to maturity, unlike fixed deposits. However, investors face a price risk if they sell prior to maturity.

Stocks

Share investors earn a return via capital appreciation/depreciation (from share price increases/falls) and dividend income (periodic payments by the company that are not fixed and can be zero).

Investors seeking high capital appreciation typically seek out profitable firms that pay low dividends, as these firms plough back earnings to expand the company rather than pay them out as dividends. These tend to be the riskier stocks. Investors desiring regular income tend to invest in lower- risk, higher dividend-paying stocks. The choice depends on one's objectives and risk appetite.

Stocks are considered riskier than bonds because their returns are more volatile. If you hold stock from a single company, your risk is not diversified. Successful stock investing requires intimate knowledge of the stocks one invests in.

Supplementary Retirement Scheme (SRS)

With the SRS, the government hopes to encourage Singaporeans to save more for their old age by means of voluntary contributions to their SRS accounts, which enjoy certain tax benefits.

Participants can contribute a varying amount to an SRS account (subject to a cap) at their own discretion. These contributions may be used to purchase various investment instruments. Each dollar of SRS contribution will reduce income chargeable to tax by a dollar. Investment gains will mostly accumulate tax-free in SRS. Tax will only be payable when you withdraw your savings from your SRS account. Furthermore, if you withdraw your savings upon retirement, only 50 per cent of the savings withdrawn will be subject to tax. You may also spread your withdrawals over a period of up to 10 years to meet your need for regular income. Spreading out your withdrawals will generally result in greater tax savings.

Take the initiative

According to our survey, the most important reason cited for not investing is lack of knowledge. But there are plenty of information sites - and even tutorials - to guide you step-by-step on how various investment tools work. If you are still clueless, MoneySENSE (www.moneysense.gov.sg) supported by MAS, is a credible site to browse. There are also many financial advisory firms with websites to educate you on the basics of investing and how to invest in unit trusts. Just make sure you do your research thoroughly before taking the plunge.

Chua Si Min, Tor Shi Ting and Wong Han Yee were final-year banking and finance students at the Nanyang Business School when they wrote this article. Dr Kong Yoon Kee is a lecturer at the school's banking & finance division.

Phillip Securites: FY08 results, Buy TP $0.45

30/05/2008

Results in line with expectation. CSC Holdings announced net income of S$43.2 (+400.3% yoy) mil on revenue of S$483.7 mil (+281.8% yoy) for FY08. Gross profit margin improved from 15.4% in FY07 to 20.2% in FY08, while net profit margin increased from 6.8% in FY07 to 8.9% in FY08. The Company proposed a final dividend of 0.5¢/sh, along with a special dividend of 0.4¢/share (tax exempt).

FY08 powered by doubling of capacity. FY08 saw the first full year contribution of L&M Foundation Specialists, a subsidiary that was acquired towards the end of FY07. The acquisition of L&M doubled CSC’s equipment fleet and capacity, which facilitated growth in both top and bottom lines. According to the management, margins were also stronger due to better economies of scale achieved. Management also attributed growth in FY08 to better pricing power amidst the current capacity crunch.

FY09 likely to be marked by geographical expansion. While growth in FY08 was largely fueled by fleet expansion, we expect CSC’s plans to expand geographically to become more apparent in FY09. While we expect results and profitability to continue strengthen into FY09, growth is more likely to be muted.

Maintain BUY, FVE S$0.45. We believe CSC is still an attractive buy at the current price, given the Company’s growth prospects, strategic positioning in the region, and the management’s prudent financial management. We maintain our BUY call on CSC, keeping to our DCF-derived FVE of S$0.45.

CIMB: FY08 results Outperform TP $0.49

30/05/2008

• Within expectations. FY08 net profit of S$43.2m (+400% yoy) was in line with our forecast of S$42.8m. Gross margins improved to 20.2% from 15.5% a year ago, attributable to improved operational efficiencies and better-margin contracts. 2HFY08 net profit rose 533% yoy to S$24.1m from S$3.8m in 2HFY07. A final dividend of S$0.005 and special dividend of S$0.004 were declared.

• Operational review. FY08 revenue rose 282% yoy to S$484m on strong demand for specialist foundation engineering (+287% yoy to S$449m) and equipment trading and leasing (+444% yoy to S$33.9m). Depreciation expenses rose sharply due to a reduction in the useful life of equipment from 15 years to 10 years.

• Improved financial position. CSC now has net cash of S$20.3m. It had managed its cash cycle well, with receivables at 38 days vs. payables at 100 days. Operating cash flow was S$50.7m vs. just S$2.2m in FY07.

• Positive outlook. Management remains optimistic of business prospects in the next few years. Current order book of S$400m is expected to expand further as it has been bidding for contracts. Management, however, acknowledged the potential adverse impact from inflationary pressures but given the nature of foundation engineering work, materials can be procured at fixed prices upon securing contracts. Also, CSC’s average contracts have short tenures of 3-6 months, which limits CSC’s exposure to fluctuating prices. A JV with Malaysia’s IJM Corporation is expected to develop new business revenues from the Middle East and India in the medium term.

• Maintain Outperform; lower target of S$0.49 (from S$0.57). With the Kok Tong acquisition aborted, we have cut our growth assumptions and reduced our net profit forecasts by 0.3-16.4% for FY09-10. We also introduce FY11 forecasts.

We continue to value CSC at 10x CY09 P/E, in line with P/E targets for industry peers. Our new target is S$0.49 (previously S$0.57) after our earnings reductions. Maintain Outperform on the back of a still-strong order book and mitigated cost pressures.

BT: CSC earnings jump five times

Business Times - 30 May 2008

CSC earnings jump five times

Strong demand for specialist foundation work, efficiency gain boost margin

By LYNETTE KHOO

RIDING the upswing in the Singapore construction sector, CSC Holdings saw its net profit soar to $43.21 million for the full year ended March 31 - five times the preceding year's $8.6 million.

Revenue almost quadrupled to $483.7 million from $126.7 million, driven by strong organic growth and contributions from three newly acquired subsidiaries. This far outpaced the 46 per cent growth reported in the Building and Construction Authority's report on the value of construction contracts awarded in 2007. Earnings per share rose to 3.85 cents from 0.87.

CSC's gross profit margin improved to 20.2 per cent from 15.4 per cent, thanks to the strong demand for specialist foundation work and improved operational efficiency.

Activity increased across all of CSC's business segments. The company attributed the quantum leap in revenue to strong organic growth and timely acquisitions. It invested $50.8 million in plant and equipment to expand its capacity and capability.

The directors have recommended a tax-exempt final cash dividend of half a cent and a tax-exempt special dividend of 0.4 cent per share. These dividends are on top of a special dividend paid out in December 2007 of 0.282 cent.

CSC is optimistic about prospects for the current financial year despite the sub-prime crisis in the US, rising building material costs, fluctuating oil prices and a general shortage of resources.

Related articles: Click here for CSC news release Financial statements

It managed these issues by procuring key materials at fixed prices upon securing contracts. Given that the average duration of a contract is about three to six months, the group's exposure to fluctuating prices is relatively manageable, said CSC.

CSC has also made inroads into Malaysia through a joint venture with IJM Construction Sdn Bhd and is looking to boost its revenue stream by diversifying into the Middle East and other Asian markets.

'We are committed to building our presence in the overseas markets where investment in real estate and infrastructure are rapidly growing,' said CSC chief executive See Yen Tarn.

At May 23, the group's outstanding order book was about $400 million.

CSC shares ended trading yesterday at 27.5 cents, down half a cent.