SGX Research: Highlights of SGX-Listed Construction Plays

• The Singapore government’s infrastructure expenditure has been led by initiatives to build and enhance the nation’s public transport network and housing framework.

• 19 companies listed on SGX have operations focused in property development and construction. They have a combined market capitalisation of $3.8 billion and averaged a total return of +34.4% in 2017, outperforming the STI Index’s +22% gain.

• In 2017, the three best performers were KSH Holdings (+85%), Tiong Seng Holdings (+74.1%) and Swee Hong (+66.7%).

Singapore’s construction industry has benefitted from the government’s infrastructure expenditure, which has been led by initiatives to build and enhance the nation’s public transport network and housing framework.

According to the Building and Construction Authority’s (BCA) media release on 11 January 2018 (click here), the public sector construction demand is expected to strengthen in 2018.

The construction demand as measured by the value of Building, Construction and Housing contracts awarded declined from $38.8 billion in 2014 to $24.8 billion in 2017. BCA announced that the total value of construction contracts awarded is expected to be in the range of $26 billion to $31 billion for the year, representing a potential pickup in demand for construction services.

The increase in the total value of contracts is anticipated with more public projects in the pipeline which may drive construction activities, such as enhancing transport infrastructure, building public housing flats and redeveloping residential estates.

Real Estate Sector Pick-up

Real Estate is a cyclical sector and its performance tends to be correlated with the economy. Amid positive economic growth and improving buyer sentiments in Singapore, the real estate sector saw a rebound in 2017 due to a firmer property market. The SGX Real Estate Index has recorded a total return +29.5% in the past year.

The upside was driven by more property investments, underpinned by growth in collective sales and en-bloc deals. With higher demand and prices for private residential properties in 2017, the Singapore Property Price Index grew 1.1% from 2016 (first annual increase in 4 years), as compared to its 3.1% decline in the previous year. The Monetary Authority of Singapore (MAS) also highlighted in the Financial Stability Review 2017 that overall private residential property prices have increased by 0.7% in Q3 2017 after registering a consistent decline since Q3 2013.

Rising En-Bloc Sales

Collective sales have “ramped up” with a total of 20 residential projects with 2900 units sold through en-bloc transactions as of November 2017, reaching the highest since 2015. To read more click here.

MAS expects that re-development of en-bloc sites will see a doubling of the number of unsold units within the next one to two years. Property developers and construction companies can expect to benefit from the recovering momentum of the property market, with rising opportunities in redevelopment and property launches.

Construction Plays Outperformed STI in 2017

SGX lists 53 companies in the Global Industry Classification (GICS) Construction & Engineering sub-industry. Of the 53 Construction & Engineering stocks listed on SGX, 19 companies have operations focused in property development and construction. They have a combined market capitalisation of $3.8 billion and averaged a total return of +34.4% in 2017, outperforming the STI Index (+22%). Over the period, the three best performers were KSH Holdings (+85.0%), Tiong Seng Holdings (+74.1%) and Swee Hong (+66.7%).

The table lists the 19 companies with a focus in property development and construction, sorted by market capitalisation. To see their profiles in SGX StockFacts, click on the stock names.

Source: Bloomberg & SGX StockFacts (Data as of 12 March 2018) Note that the table below does not include all stocks listed under the Construction and Engineering Industry on SGX.

Three Largest Construction Plays

Chip Eng Seng Corporation

Chip Eng Seng Corporation (Chip Eng Seng) has declined 4.1% in the year thus far, following a total return of +63.6% in 2017. According to its FY 2017 report, Chip Eng Seng reported revenue rose 14.9% to $859.7 million in 2017, largely contributed by improved performance from the Hospitality and Property Development Division (Click here).

On 5 March 2018, Chip Eng Seng announced its plan to diversify into the education sector and this proposed plan is “complementary to existing business” and “provides growth in a capital intensive market”. To read more click here.

Low Keng Huat

Low Keng Huat has gained 1.5% in the year thus far, following a total return of +25.6% in 2017. In its 3Q 2017 results (click here) , it reported a 9% rise in revenue to $13.5 million for the quarter, largely contributed by the increased sales in its Development Segment, with lower revenue from its Hotel Segment.

Low Keng Huat entered into an en bloc acquisition of Cairnhill Mansion for $362 million on 14 February 2018. To read more click here.

KSH Holdings

KSH Holdings(KSH) has declined 7.1% in the year thus far, following a total return of +85% in 2017. In the latest 2017 Q3 results (click here), KSH achieved a 12.9% increase in net profit to $10.3 million with an order book value of $587 million as of 31 December 2017 . Mr Choo Chee Onn, Managing Director and Executive Chairman noted that KSH had been awarded a new civil engineering project in 3Q18 and remains optimistic of the outlook in construction sector.

On 5 March 2018, KSH announced that Development 24, a joint venture between Heeton Holdings (10%), Lian Beng Group (42%) and KSH (48%), has acquired the properties at 31 to 51(Odd) Lorong 24, Geylang for a consideration of $60 million. To read more click here.

This article was originally published on SGX.