Building Material Stocks - Labour Situation Improving
- Construction sector employment in Singapore rose 14% y-o-y in 2Q22, forming ~99% of end-Dec 19 levels, as border controls were significantly relaxed in Apr 22. In addition, average weekly paid overtime hours worked by construction employees in 2Q22 rose 7% y-o-y, supporting our thesis of contractors accelerating project execution to make up for lost time.
- While recent macroeconomic headwinds and elevated construction costs could dampen investment appetite from the private sector (~40% of annual construction demand), we believe construction activities should remain supported in the medium term by:
- Elevated order books. The combined order book (as of end-Jun 22) of 19 Singapore-listed construction firms remained elevated at ~20% above the 7-year (FY15-21) historical average.
- Resumption of major projects including Terminal 5 (~S$10bn) and the integrated resorts expansion (MBS and RWS, ~S$4.5bn each)
- Continued ramp-up in public housing supply. To meet stronger housing demand, Singapore aims to increase its Build-To-Order (BTO) flat supply to ~21k per annum over 2022-25F (2019: 14.6k, 2021: 17.1k).
- While the sector still faces some transient productivity issues (time needed to train newer workers) and safety time-outs (from increased workplace accidents) in 3Q22F, we believe these issues should gradually be alleviated in the coming quarters.
- We retain our Overweight call on the sector as we expect both BRC Asia (SGX:BEC) and Pan United (SGX:P52) to benefit from ramp-up in project execution and healthy profit spreads.
- Our top sector pick is BRC Asia (SGX:BEC) given its relatively attractive valuation (~6x CY23F P/E) and higher dividend yield of ~10%.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
ONG Khang Chuen CFA CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | https://www.cgs-cimb.com 2022-09-21 2022-09-21
Read also CGS-CIMB's most recent report:
2022-08-04 Pan-United Corporation - Riding The Construction Rebound
Pan United Analyst Report,
Pan United Target Price,
Pan United Share Price History,
Pan United Announcements,
Pan United Dividends/ Corp Actions,
Pan United News Articles