SINGAPORE (Jan 5): Yongnam is CIMB's top sector pick in view of catalysts from major order wins for mega infrastructure projects in Singapore.
In addition, CIMB highlights five companies with more than $100 million market cap with a similar track record as Yongnam.
These are construction companies Wee Hur and Lum Chang, civil engineering company Koh Brothers concrete supplier Pan-United Corp.
The Building and Construction Authority (BCA) has estimated between $18 billion and $23 billion worth of public sector construction per annum in 2018-2021, half which is expected to comprise civil engineering projects.
In a Thursday report, lead analyst Colin Tan says this should translate into at least $9 billion worth of civil engineering contracts in 2018, exceeding the value awarded in 2017.
Upcoming tenders this year include the bulk of North-South Corridor (NSC) project worth $13 billion, which would support public sector construction demand.
In addition, the tender price index seems to have found a floor at 96.0-97.0 in 9M17, which we think indicates that competitive pressure for construction project bids is starting to abate, says Tan.
CIMB projects future redevelopment of the Jurong Lake District could lead to over $3.6 billion worth of construction demand.
Mega infrastructure projects in the pipeline include Jurong Regional Line, Cross Island Line and various developments for Changi Airport Terminal 5.
The research house estimates about 1,800 ha of land will be freed up for redevelopment post-relocation of existing port terminals and Paya Lebar Airbase in 2030 onwards.
Furthermore, Tan says a good portion of the demand would come from awarded en bloc sales, of which several projects could be launched this year, potentially yielding $1 billion in construction value.
Furthermore, the government has said it aims to keep the total supply of private residential units for 1H18 at a similar level to the supply of units in 2H17. This could lead to growth in construction demand from the private residential space.
Shares in Yongnam, Wee Hur, Lum Chang, Koh Brothers and Pan-United are trading at 34 cents, 26 cents, 37 cents, 34 cents and 42 cents respectively.
