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Have we finally seen the last of contractors that fail to complete HDB upgrading projects? Or contractors that bail out halfway after securing multi-million dollar projects to construct carriageways?
The Building Construction Authority’s appointment of DP Information Group (DP Info) in 2006 to perform credit rating on A1, A2 and B1 graded construction companies that are eligible for government construction projects is one of the government’s initiatives to ensure that projects do not fail due to over-gearing or weak cashflow management of their developers.
The 2006 report card of the construction industry also seems to suggest that the once troubled industry is slowly but surely getting back on its feet. Advance estimates released by the Ministry of Trade and Industry indicate that the construction industry grew 2.4% in the fourth quarter of 2006 to register a 1.1% growth for the full year of 2006. This is the first year since 1998 that the industry has reported a positive growth.
These are indeed encouraging signs for the industry that has experienced persistent negative growth for seven years. The revival of the industry is further reinforced by the 6.7% growth in consolidated turnovers registered by construction companies that made it into the DP Information Group’s annual ranking of public listed companies.
One of the construction companies that made it to the S1000 rankings as well as the Top 500 Public Listed Companies rankings, is Lian Beng Group Ltd, a company with businesses in construction, engineering, leasing, property development, etc. for special mention. Ranked 149th based on the latter, the company recorded a 27.6% growth in sales revenue to register S$189 million. This increase was largely attributed to the higher revenue recognition from progressive completion of construction projects.
The company has progressed from local public housing construction to private residential and commercial properties. With the property sector heating up, the company managed to secure contracts amounting to approximately S$159 million in total to design and build three condominium projects. Their current projects include the Lakeshore Condominium, La Casa Executive Condominium and the condominium at Mount Sophia and a HDB contract for 424 dwelling units at Sengkang. What is especially noteworthy for the company is the recent award of a USD17.4 million contract to design and build 600 single-storey housing units at the Raa Dhuvaafaru Island, making the company the first Singapore-listed construction company to be awarded a housing project in the Maldives.
CSC Holdings Ltd, ranked 220 in DP Information Group’s Top 500 Public Listed ranking is another construction company that had turned in a stellar performance. The group, whose core business is in foundation engineering works, has become a leading engineering contractor specializing in foundations after its acquisition of L&M Foundation Specialist. It recorded a 39.4% increase to register S$107.3 million in turnover with the completion of some high profile foundation projects such as the S$12 million large diameter bored pile foundation (1350 piles) for The Pinnacles-HDB 50-storey public housing at Duxton Hill, and a S$ 16 million driven pile foundation (7000 piles) for 32 large oil storage tanks for Horizon Singapore Projects Pte Ltd at Jurong Island. Net profit more than doubled with a 109% growth to S$4.4 million. Going forward, the group intends to ride on opportunities in the regional construction markets such as Malaysia, Vietnam, India and the Middle East, to expand its core foundation engineering business.
Low Keng Huat (Singapore) Limited, a family owned business with 30 subsidiaries and associated companies involved in four core activities viz. construction civil engineering, property development, property investment and hotel/ hospitality registered a high turnover of S$106.2 million as at FY2006.Ranked 224 in DP Information Group’s Top 500 Public Listed Companies, Low Keng Huat (Singapore) Limited was also one of few BCAgraded construction companies given a DP Credit Rating of DP1 (investment grade) by DP Information Group. The DP Credit Rating is a proven model that measures the probability that a company is unable to fulfil its financial obligations within a given time horizon (12 to 24 months). It takes into account the performances of 6 broad risk categories viz. Profitability, Capital Structure, Liquidity, Activity, Growth and Size. DP1 denotes a very low credit risk of Probability of Default standing at less than 0.1% and is an attestation that Low Keng Huat (Singapore) Limited possesses strong financial backing with low default probability and has the ability to undertake large-scale General Building projects. Projects that the company has undertaken include the development and construction of up-market condominiums such as Domain 21 at Delta Rd, and the 36-storey Regency Suites with a spa theme at Kim Tian Road.
On a general note, construction demand in Singapore is set to grow between S$13 billion and S$15 billion a year over the period 2007 to 2011. The increased activity and hype in the property market with high profile private property projects being snapped up has revitalized the construction sector with penny construction stocks registering significant gains. High profile development projects such as the two integrated resorts, the Marina Bay Financial Centre, upmarket condominium projects at Marina Bay, Orchard Road and Shenton Way as well as the proposed petrochemical facilities on Jurong Island are expected to bring about a reverse in fortunes and improved the outlook for the construction sector.
Having experienced a plunge in Gross Domestic Product (GDP) from S$13.9 billion in 1998 to $6.8 billion in 2006 , the construction sector is set to witness more changes and challenges in comparison to other industries in Singapore. While the recent private property price surges in 2006 would suggest that better days are here again, it remains to be seen if this positive outlook is the beginning of good days to come for an industry that depends so much on the resources of Singapore’s neighbouring countries.
The recent ban by Indonesia on sand exports, for example, has adversely impacted Singapore-listed construction stocks with fears of a possible slowdown in the construction sector, which is recovering after years in the doldrums, and industry players have estimated that overall construction costs could climb 3-10 per cent as a result. Though the government has taken counter-measures to release sand from its stockpiles and source for land sand from other countries, it may take a while for the supply to resume to the original amount needed for construction activities.
As this sector picks up along with improving economic conditions and higher demand for housing, the vulnerability of the construction sector to policy changes in neighbouring countries calls for continuous effort from developers and contractors to actively explore alternative construction methods and materials.
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