Construction sector

Construction sector | Overweight

CGS CIMB Research, April 9

EIGHT Singapore companies attended our SGX-CGS-CIMB Construction & Infrastructure Day. Most senior management were optimistic on the outlook for 2018, as they expect higher construction demand from a slew of en bloc projects to be relaunched and major infrastructure projects.

With the Building and Construction Authority projecting the value of construction contracts awarded this year to rise, several companies are optimistic on replenishing their order books in second half of 2018.

According to the Singapore Commercial Credit Bureau, the level of slow payments in the construction sector showed marked improvement in Q1 2018 from Q4 2017. If payment performance within the sector continues to improve throughout 2018, we think this would shorten construction companies' cash cycles and boost capacity to take on more projects.

We expect construction costs to bottom out in 2018, although companies reported that competition is still keen in their respective segments such as geotechnical engineering and other civil engineering works.

We remain upbeat on sector outlook and maintain "overweight" with a preference for specialist civil engineering firms that have established track records for niche expertise. Yongnam Holdings remains our preferred sector pick. Key sector risks include delays in awarding projects and heightened competition.

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