In a year set to be marked by mega-projects like Changi Airport Terminal 5 and the expansion of Singapore’s integrated resorts, PhillipCapital analyst Paul Chew has doubled down on the construction sector, maintaining an “overweight” rating. His optimism stems from robust project pipelines, steady demand, and promising trends that could define the industry in 2024 and beyond.
Chew has issued “buy” recommendations for Wee Hur Holdings and Pan-United Limited, alongside “accumulate” calls for Centurion Corporation and BRC Asia, with target prices of 62 cents, 68 cents, $1.02, and $2.80, respectively.
Surging Construction Output and Record Contracts
The construction sector has seen an impressive 8.9% year-on-year growth in output from January to October 2024, driven by companies clearing pandemic-era backlogs and meeting ongoing demand. Notably, contracts awarded in the past 12 months have reached a record $44 billion, reflecting a 36% year-on-year surge. This pipeline promises strong output for the next 12 to 18 months, according to Chew.
Meanwhile, prices of critical building materials such as steel rebars have stabilized, with a notable -9.8% year-on-year decrease. Cement and ready-mixed concrete prices remain steady, albeit higher than pre-Covid-19 levels.
Worker Accommodations and Public Housing Boom
Despite a marginal 0.4% half-on-half increase in demand for worker accommodations by mid-2024, Chew forecasts a resurgence as major projects ramp up. The Building and Construction Authority (BCA) projects construction demand of $31 billion to $38 billion annually from 2024 to 2028, surpassing pre-pandemic averages.
Public housing remains a bright spot, with the Housing and Development Board (HDB) delivering 21,225 new flats in the first 10 months of 2024, nearly matching the previous year’s high. With a commitment to launching 100,000 flats from 2021 to 2025, HDB is driving annualized growth of 3.2% in new units.
Stock Picks: Catalysts for Growth
- Wee Hur Holdings: Chew highlights the group’s upcoming 10,500-bed Pioneer Lodge dormitory, slated for FY2025, as a key growth driver. Additionally, the potential sale of its student accommodation portfolio could net $320 million in cash, paving the way for special dividends.
- Pan-United Limited: The company’s focus on low-carbon concrete products could position it as a leader in sustainability. Such products already contribute over 50% of its 1HFY2024 revenue.
- Centurion Corporation: The completion of its 1650-bed Westlite Ubi dormitory is expected to drive revenue, benefiting from East Singapore’s limited supply and premium rental rates.
- BRC Asia: Riding on a strong order book tied to the integrated resorts and Changi Airport expansion, Chew anticipates continued revenue and profit growth. Dividend yields for FY2025 are projected to remain attractive at 7%.
Outlook: Building Towards a Bright Future
With demand underpinned by marquee projects and public housing commitments, Singapore’s construction sector is poised for robust growth. Chew remains bullish, citing resilient material prices and promising corporate strategies that align with the nation’s development agenda.
This construction renaissance presents lucrative opportunities for investors, making the sector a cornerstone of Singapore’s economic growth in the coming years. “The strong project pipeline and stable building material costs signal sustained momentum,” says Chew.
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