Excerpts from DBS Vickers' 72-page report
Analysts: Lee Keng LING, Carmen TAY, Alfie YEO
|More en-bloc sites beneficial to developers and contractors. With the increasing demand for property, construction companies should benefit from this rising trend. Furthermore, the recent en-bloc fever is also another contributing factor to the rising demand for property. As en-bloc sales have been very active over the past 1-2 years, the redevelopment of these en-bloc sites will benefit both property developers and contractors.
DBS Research estimates that c.15,000 potential units from redevelopments of en-bloc sales (and up to 21,000 including available parcels on government land sales) could be added over the next 1-2 years - essentially 2x that compared to the last 2-3 years on average. Companies with dual property development and construction exposures are prime beneficiaries.
In addition to the recovery in the property market and improving construction outlook, we opine that selected companies with these dual exposures could outperform given potential synergies arising in the form of cost savings and productivity.
|Lian Beng (NOT RATED, fair value: S$0.85)
Lian Beng is one of Singapore’s leading construction groups and through successful forays into the complementary property development and property investment segments, has gained substantial scale and scope.
The newly replenished construction order book of c.S$836m – after securing c.S$300m worth of contracts over the last three months - provides strong earnings visibility, while upcoming sales launches in 2018 are set to drive the group’s profitability in the medium term.
Supported by an investment portfolio valued at over S$1bn, Lian Beng’s recurring income pool is set to remain on a steady growth path following recent acquisitions, providing the group with a steady earnings base. Steering a path of stability and growth, we see the company as a steady proxy to a recovery in the property market.
After imputing a 50% discount to RNAV of S$1.37 per share and valuing its construction arm at peers’ average of 8x FY18F PE, we arrive at an SOTP-based fair value of S$0.85. Further, the proposed spin-off of its property development business could help unlock value for shareholders, while its attractive exposure to Gaobeidian could provide further upside.
|Tiong Seng (NOT RATED, fair value: S$0.45)
We see Tiong Seng as a beneficiary of renewed activity in the residential sector. One of the largest providers of prefab solutions in Singapore, Tiong Seng has a track record of constructing public and private residential buildings.
With the government’s drive to improve productivity in the construction sector through prefab technology, Tiong Seng will be one of the potential beneficiaries if construction activity in the residential space picks up from 2018.
We think the stock's fair value is S$0.45, pegged to an average of 6.6x FY18F PE and 0.6x book value.
Full 72-page report here.