We believe KSH Holdings (SGX:ER0) remains an under-looked beneficiary of the construction recovery in Singapore over the next few years.
KSH’s construction business has been impacted by deteriorating and negative margins since the pandemic, in part due to escalating costs amid legacy projects. Upon completion of these projects, KSH has since reverted back to positive construction gross margins in FY25 and is expected to further improve moving forward, helping boost earnings to between $17-21mln over the next 2 years, putting its Forward and Prospective P/E at 13x and 11x respectively.
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Rebound in construction margins.
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During the pandemic years, margins have deteriorated significantly for reasons including work stoppages, higher raw materials and inflationary pressures. Lower-margin legacy projects were unable to provide enough buffer against increased costs, leading to poor years like FY24 in particular (negative 9.8% gross margins). As these projects reach completion and are replaced by newer projects, FY25 saw a rebound with positive construction gross margins of 8.1%.
Looking ahead, KSH is actively tendering for both public and private projects across residential, commercial, industrial, infrastructural, and institutional building sectors.
BCA projects total construction demand to range between S$47bln-S$53bln in 2025, exceeding the construction demand of S$44.2bln in 2024. Construction demand is expected to range S$39bln-S$46bln per year from 2026 to 2029. While KSH does not take part in civil engineering works like road building or MRT construction, the company is involved in several laboratory projects, where competition is less stiff.
KSH is a leading player in the laboratory construction space, with a track record of projects such as laboratories for the National University of Singapore (NUS), hospitals, and facilities for companies in the semiconductor and engineering industries. Contracts that KSH bid for typically require a pre-qualification process, narrowing the field of eligible competitors and providing better margins. Industry prospects remain favourable and we believe KSH will be able to rebuild its order book levels back up to >S$500 million in the near future.
Contributions from Singapore development projects.
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Above is an excerpt from a report by Lim & Tan Securities Research. Clients of Lim & Tan Securities may be the first to access the full PDF report @ https://www.limtan.com.sg/.
