BT: Govt has arsenal to counter US-driven slowdown: PM Lee

So I believe Singapore construction sector will still be resilient and in high demand amid the ongoing slowdown in US.



Business Times - 07 May 2008

Govt has arsenal to counter US-driven slowdown: PM Lee

In a crunch, it can pump-prime the economy and give targeted assistance

By CONRAD TAN

(SINGAPORE) Singapore is prepared to face any economic scenario that emerges from the current uncertain climate, including a prolonged downturn in the United States, said Prime Minister Lee Hsien Loong yesterday.

One option to fall back on would be to boost economic growth through government spending, including resuming construction projects that were earlier put on hold, he said.

'If things do get bad, which cannot be ruled out - although it does not appear to be on the cards - we are not without recourse,' he told a group of some 100 guests including chief executives, senior bankers and economists at a discussion hosted by Thomson Reuters.

'If we need to move on fiscal policy to stimulate the economy, we can do that. If we have to have directed assistance to help the lower-income because unemployment has gone up - right now it's at a very low level, but if that happens - we can do that.

'And if I have to stimulate the economy or some sector of the economy, I can do that too.' In the construction sector, for example, the government could restart projects that it had put on hold, he said.He also said that he wished that the government had 'moved earlier' to ease the office space crunch in the financial sector, which has grown so rapidly that prime office space rents have soared, prompting banks to move some of their staff and operations to out-of-town locations.

'I wish we had moved our banking and financial centre six months earlier than we actually did. But at that time, the market looked cold and nobody was interested and we were unable to generate the interest for it to take off.'

But the government has since taken steps to build more office space, housing and schools to ease some of the capacity constraints, he said.

HSBC economist Robert Prior-Wandesforde asked Mr Lee if he thought that Singapore could be in danger of losing its lead over other countries in export competitiveness, especially given the recent disappointing growth figures for electronics exports.

Singapore's non-oil domestic exports fell by 5.9 per cent in March, the steepest decline since February last year. Electronic exports shrank for the 14th month in a row.

Mr Lee said that the falling dollar value of electronics exports was likely to be an 'inevitable trend' - partly because 'prices have been crashing' even though the volume had risen - but that other sectors of manufacturing such as pharmaceuticals would provide support. 'Our overall export numbers are not bad - could be better, but they're not bad. I don't think it is a sign of our losing export competitiveness.'

David Conner, chief executive of OCBC Bank, asked Mr Lee what he thought the reaction of other governments in the region to rising food prices and overall inflation was likely to be.

Mr Lee said that 'it would be a pity' if countries closed up their markets 'because it's really the markets that are going to make sure that the food goes where it's needed and there's enough for everybody to eat'.

He said that cooperation among the Asean countries was necessary 'to make sure that we coordinate among ourselves and do not work against one another'.

Long-term problems affecting food supply such as under-investment in research and development would take time to solve, he said. 'We must be prepared to see food prices up for some time.'

Separately, he told Reuters in an interview before the discussion that the Government of Singapore Investment Corp (GIC) would not disclose as much detail about its investment portfolio as Singapore's other state-owned fund, Temasek Holdings, despite pressure from foreign governments.

'GIC and Temasek are different,' he said. 'We do not want to tell people exactly how much we have so it's easier for them to make a run on the Singapore dollar.'

GIC, which invests Singapore's foreign reserves overseas, is believed to be the world's third largest sovereign wealth fund, with an estimated US$330 billion in assets under management, according to Morgan Stanley in February. Unlike Temasek, which began publishing an annual review of its portfolio in 2004 containing consolidated financial statements and its investment returns, GIC reveals only that it manages funds 'in excess of US$100 billion' on behalf of the government and the Monetary Authority of Singapore.

GENTING International has awarded a $340 million contract to Singapore-listed Low Keng Huat

Hard Rock Hotel contract awarded

By ARTHUR SIM

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GENTING International has awarded a $340 million contract to Singapore-listed Low Keng Huat (S) Ltd to build the Hard Rock Hotel at Resorts World at Sentosa (RWS).

Rock on: It will also have conference facilities, more than 20 meeting rooms and a large ballroom with seating for 7,300 guests
The latest construction award brings the tally of construction contracts to over $1 billion.

The Hard Rock Hotel will be the first and only such hotel here. It is also one of six hotels at the $6 billion RWS development.

Expected to open in early 2010, the Hard Rock Hotel will have 360 keys (rooms), including nine suites and 351 rooms.

It will also have conference facilities, more than 20 meeting rooms and a large column-free ballroom with seating for 7,300 guests.

Michael Chin, executive vice-president of projects at RWS, said that Low Keng Huat was selected from a tender exercise which drew 'several bids'.

He added that the construction of the resort is entering a new phase in which the superstructures such as the hotels will be built.

'Low Keng Huat's proven track record and expertise in building construction and property development, especially in hospitality-related sectors, were the key factors in our selection,' Mr Chin said.

One of the challenges in the construction of the Hard Rock Hotel will be the ballroom.

Low Keng Boon, managing director at Low Keng Huat, said the difficulty in constructing the ballroom lies in the fact that it is completely column-free, without the support of beams for a foundation.

With a floor area of 6,500 sq m and at a height of 11m, Mr Low explained that extremely large trusses will have to be specially manufactured to withstand the weight of the entire structure.

RWS will have some 1,800 rooms, spread across its six hotels of varying themes. Topping the list are Maxims Residences, Hotel Michael and the Hard Rock Hotel.

BT: Analysts staying upbeat on construction stocks

Business Times - 07 Apr 2008

Analysts staying upbeat on construction stocks

By LYNETTE KHOO

DESPITE the upward cost spiral of raw materials such as steel and granite, analysts believe strong orders from both the public and private sector will underpin the construction sector.

In its 'Building Blocks for Growth' investment seminar over the weekend, OCBC Investment Research highlighted the growth prospects in the sector to its preferred clients, pointing to the string of contracts pouring into the local construction sector from public projects to re-invent Singapore as well as jobs from the property sector.

CIMB-GK analyst Lawrence Lye reiterated his 'overweight' rating on the sector in his report dated April 4.

Last year's brisk construction activities brought total contracts awarded to a new record high of $24.5 billion, breaching the previous peak in 1997 of $24.4 billion.

The Building and Construction Authority (BCA) is projecting that some $23-27 billion worth of contracts will be awarded this year.

But analysts are also pointing to the challenges ahead for this sector. Recent downside risks are emerging in the form of higher raw material costs. The upward pressure on prices of construction materials such as steel is further exacerbated by increased global demand for building materials.

'The strong growth in Asia has also buoyed demand for most building materials,' OCBC said in its report. 'In Singapore, the growth in construction demand in 2008 is likely to be broad-based, stretching from residential, commercial, industry to the civil engineering segments.'

Escalating construction costs are leading to higher breakeven prices, Mr Lye of CIMB-GK said, estimating that the construction cost for an average luxury condominium development is at least $450 per square foot.

Another sticking point is coming from the easing of residential property prices, he added. This has recently been reflected in the delay in property launches, lower transaction volumes, as well as the lower-than-expected prices for en bloc sales and aborted en bloc sales.

Mr Lye noted that rising property prices over the past few years have prompted many non-traditional property developers, such as construction companies, media and publishing companies and hotel groups, to jump into the fray to capitalise on quick profits.

The success of these 'newbie developers' hinges on their ability to speed-to-market - to sell their properties quickly before the market turns down and prices fall to below their costs.

But the tide is now turning against them, given the US sub-prime problems in mid-2007 that have led to a substantial weakening in consumer sentiment, and escalating construction costs since early 2007 when the Indonesian government started the export ban on sand and granite to Singapore.

'With continued rising construction costs exacerbated by higher steel prices, these construction companies-turned-developers are likely to be saddled with properties that are below current benchmark prices,' Mr Lye said.

While expressing caution on such companies, Mr Lye recommends that investors focus on pure-play construction companies or specialist contractors. His top picks are Holdings, Tat HongTiong Woon Corporation and CSC Holdings.

OCBC is initiating a 'buy' rating on Pan-United Corp and upgrading its call on Tee International to 'buy' from 'hold'. It does not have a rating for the sector yet.

BT: Plan to defer public works will have little impact

Business Times - 21 Feb 2008

Plan to defer public works will have little impact: report

Delaying $3b worth of projects won't help relieve building demand, says RLB

By ARTHUR SIM

CONSTRUCTION industry experts are seeking to play down the significance of the government's moves to ease the pressure on the industry's costs.

The government is intending to defer an additional $1 billion worth of public-sector projects to help the industry - a move that follows the decision last November to postpone $2 billion worth of projects.

A report by construction cost consultancy Rider Levett Bucknall (RLB) said that the deferring of public-sector projects 'is expected to have a limited impact on relieving construction demand as it will represent around 10 per cent of annual demand'.

Latest estimates by the Building and Construction Authority value construction contracts awarded this year at up to $27 billion.

RLB's latest figures for its tender price index shows that it also increased by 23 per cent as at the end of the third quarter last year. It said that rising construction costs are attributed to increased costs of foreign construction labour and professional expertise, materials and equipment costs, as well as on- and off-site overheads.

Indicative construction costs of an office building in the CBD of up to 41-55 storeys is between $353- $438.5 psf of gross floor area (GFA).

The construction costs of a luxury condominium is between $325.2 and $441.3 psf of GFA, while a five-star hotel will cost between $464.5 and $627 psf of GFA to build.

Good quality retail space costs $311-$367 psf of GFA to build.

In terms of key construction materials, concreting sand has shown the highest year-on-year increase, jumping 160.3 per cent as at November 2007. The price of granite aggregate increased by 32.1 per cent in the same period while the price of ready mix concrete increased by 71.4 per cent.

However, RLB noted that prices did generally 'moderate to a downward trend' for the second half of 2007, the period that coincides with the start of the US sub-prime loans crisis and the global credit crunch.

Indeed, RLB added: 'Whilst the Singapore construction market will be somewhat buffered in the short term by existing development commitments within the domestic market, it will be difficult to predict the impact of the global financial crisis in the medium run.'

RLB does believe that on the back of rising crude oil prices and growing building activity particularly in the Middle East, China and India, price gains are anticipated for the first half of 2008.

Citing other industry sources, RLB said that world steel demand is forecast to reach over 1.45 million tonnes in 2011, which represents an 88 per cent growth in the ten years from 2001.

'However, a slowdown in the rate of demand growth is anticipated towards the end of the current decade,' it added.

CIMB: Construction sector

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

BT: 2008 construction deals seen hitting record $27b

Business Times - 16 Jan 2008

2008 construction deals seen hitting record $27b

BCA forecast based on strong demand from private sector

By UMA SHANKARI

(SINGAPORE) The value of construction contracts awarded this year will reach $23-27 billion on the back of strong demand from the private sector, according to official estimates released yesterday.

Last year, the total value of construction contracts awarded hit $24.5 billion - also mainly due to strong private sector demand - according to the Building and Construction Authority (BCA).

The figure came in slightly above analysts' estimates of around $24 billion as well as BCA's previous estimate of $19-22 billion.

In terms of nominal value, last year's figure is higher than the peak demand of $24.4 billion seen in 1997. But if inflation is taken into account, last year's demand still fell about 9 per cent short of the total value of contracts awarded in 1997, BCA said.

Analysts said that the pace of contracts awarded in 2007 shows that growth is still to come.

'The $24.5 billion number is certainly impressive,' said Citigroup economist Kit Wei Zheng. 'Consider this. In the first 10 months of the year, we had $18.5 billion of construction contracts.

This implies that $6 billion of contracts were awarded in November and December alone - roughly $3 billion a month. This is far higher than the $1.85 billion monthly average in the January to October period.'

Mr Kit said that the trend indicates that the pipeline of future contracts is likely to support construction GDP growth well into the second half of 2008 and 2009.

For this year, the private sector is again expected to account for the bulk of construction demand, mostly from residential and commercial developments. In 2007, some $18.8 billion worth of contracts came from the private sector.

However, the high construction demand is expected to continue to exert pressure on the construction industry's resources by driving costs up and leading to a capacity crunch.

In 2007, the price of ready-mixed concrete climbed 75 per cent to $130 per cubic metre, while the price of steel bars rose 34 per cent to $1,000 per tonne, BCA's data showed. Labour costs are also on the way up. Overall construction costs increased as much as 40 per cent last year, analysts said.

Many developers are also reporting that most contractors are fully booked for 2008.
Addressing this, the government said that it is 'taking proactive measures' to ease the pressure on construction resources.

Last November, it identified more than $2 billion worth of public sector projects that could be rescheduled to 2010 or beyond. 'All ministries are currently combing through their list of projects to identify more projects for rescheduling,' Parliamentary Secretary for the Ministry of National Development Mohamad Maliki bin Osman said yesterday.

BCA will also increase the number of overseas testing centres to 25 by mid-2009, up from 19 at present. This would allow more foreign workers to be employed.

The government is also encouraging the industry to use more recycled and alternative construction materials. A proposed licensing scheme for importers of materials like sand and granite is being finalised, said Dr Maliki.

He said that the assistance scheme that BCA implemented last year to share the risk of bringing in sand from distant sources will be ended, since it has been a year since Indonesia banned the export of concreting sand to Singapore. 'The move is based on feedback from the industry that the scheme is no longer necessary,' Dr Maliki said.

BCA also intends to continue to encourage the development of environmentally sustainable buildings. New guidelines on concrete usage will be introduced later this month, it said.

BT: Construction demand could set new record

Staying invested with the booming sector cannot go any wrong.

++++++++++++++++++++++++++++++++++
Business Times - 14 Jan 2008

Construction demand could set new record

Analysts estimate $24 billion worth of contracts were inked in 2007

By UMA SHANKARI

(SINGAPORE) Construction demand in 2007 exceeded official estimates and is likely to have hit $24 billion, analysts said.

At present, the official forecast for last year's construction demand is $19-$22 billion. But in just the first ten months of 2007, construction demand hit $18.5 billion. In addition, several major contracts were also awarded in the last two months of the year.

'A ballpark estimate suggests that contracts awarded could have reached $23 billion for the whole of 2007,' said Citigroup economist Kit Wei Zheng. CIMB-GK economist Song Seng Wun is slightly more bullish - he expects construction demand for last year to come in at $24 billion.

Singapore's construction sector has once again emerged as a major growth driver, after being in the doldrums for about eight years following the Asian Financial Crisis of 1997/98.

Last August, industry regulator Building and Construction Authority upped its construction demand forecast for 2007 from its earlier estimate of $17-$19 billion.

There is also a sense that this year, construction demand will exceed the previous peak of $24.4 billion seen in 1997.

'The construction sector is expected to remain a key driver to GDP growth in 2008,' said Kim Eng's research team. 'The combined construction budget of the two Integrated Resorts amounts to over $12 billion and there is burgeoning demand from the residential property segment.'

Citigroup, for one, predicts that the pipeline of future contracts will likely remain large, supporting construction growth well into the second half of 2008 and 2009. 'Given the synchronised supports from the integrated resorts, residential and commercial property boom and infrastructure projects, construction demand could well exceed the previous 1997 peak this year,' said Citigroup's Mr Kit.

Apart from the two IRs and infrastructure projects, the large pipeline of residential projects could yield between $12-15 billion of contracts awarded over the next two years, he said.

OCBC Investment Research analyst Serene Lim also pointed out that the government intends to raise the value added of Singapore's energy industry to $34 billion in 2015 - an increase of about 70 per cent from current levels. The initiatives include probable plans to build an oil refinery with a capacity of 150,000 barrels per day, a liquefied natural gas terminal and biodiesel production plants, she said.

A recent report by construction cost consultancy Rider Levett Bucknall says that Singapore is on the upturn of the construction activity cycle, having recently emerged from a trough.
Analysts are also bullish on the prospects of construction firms in 2008.

'The going will continue to be good for local builders as they enjoy strong order books and margins expansion,' said Kim Eng Research.
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Reuters: Construction firms up on casino hopes

Business Times - 03 Jan 2008

Construction firms up on casino hopes

SINGAPORE - Shares of construction firms soared as expectations that Koh Brothers Group and Lian Beng Group would win a lucrative contract lifted sentiment for the whole sector, bucking the downward trend of the market.

A consortium of Koh Brothers and Lian Beng Group are running for contract worth around $500 million (US$348 million) for works related to one of the two casinos under construction in the city-state.

'The market expects that they will win the bid, it's quite a firm deal already,' said a local dealer.
Lian Beng rose as much as 5.1 per cent to an eight and a half year high of $0.82 and was the third most actively traded counter on the Singapore bourse with 18.8 million shares traded.

Koh Brothers jumped 6.5 per cent to $0.49 with 8.5 million shares changing hands.

Other construction plays such as Yongnam Holdings rose as much as 3.3 per cent to $0.31 with seven million shares traded. CSC Holdings was up 1.5 per cent to $0.33 with six million traded.

Economic data released on Wednesday showed Singapore's construction sector growing a healthy 24.4 per cent in the fourth-quarter. -- REUTERS

CIMB: Lian Beng Group TP $0.89

Singapore's Lian Beng Group target price raised to 0.89 sgd - CIMB-GK

10/9/2007 2:47:00 PM

SINGAPORE (Thomson Financial) - CIMB-GK Research said Tuesday it has lifted its target price for Lian Beng Group to 89 cents from 77 cents after the construction company and property developer secured a 200 million Singapore dollar contract to build a residential condominium project, bringing the group's order book to 575 million dollars.

At the same time, Lian Beng is taking a 20 percent stake in a project in northeastern Singapore, enabling it to benefit from rising residential property prices in suburban areas, the brokerage said.

"We are upgrading our 2008-2010 earnings estimates by 12-29 percent to account for the project. Due to a current shortage of contractors, Lian Beng can afford to be selective on projects and remains well positioned to clinch new contracts with better margins," CIMB-GK said in a note to clients.

The brokerage said it expects Lian Beng's net profit in in the year to May 2008 to more than triple to 15.50 million dollars from 4.4 million dollars in the previous year. Earnings will be bolstered by its strong order book, improving margins, recognition of profits from property developments and new integrated resort contracts.

At 2.35 pm (0635 GMT), Lian Beng shares were up 1.5 cents or 2.6 percent at 59.5 cents with 15.54 million shares traded.

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.