Summary: Singapore's construction sector is booming again after years of languishing at below S$12b contract level. Since 2004, the total contract awarded grew at annual rate of 25% and hit a new record high of S$24.5b in 2007.
For this year, the Building and Construction Authority (BCA) is projecting some S$23-27b worth of contracts to be awarded. Of this, the bulk will still come from the private sector at around 62%, but the pace of public sector jobs is likely to pick up due to numerous infrastructural projects in the country.
The slew of residential projects launched in the past 12-18 months and the re-development of residential sites have also added to the pool of available jobs. However, prices of raw materials have spiked up and could impact margins, especially if the developers or contractors are unable to pass on the additional costs.
With order books at unprecedented levels, this should help to mitigate rising construction costs. Overall, the outlook for the sector is still positive for the next 2-3 years. (Research Team)
For more information on the above, visit www.ocbcresearch.com for detailed report.
Pan-United Corporation: Constructing a good yield
Summary: Pan-United Corporation (PANU) recently reported its FY07 results with topline growing 45% to S$437m while PATMI (ex EI) grew a respectable 16% to S$34.2m.
Total gross dividends declared for FY07 was 4.56 cents, translating to a payout ratio of 72%. Singapore's infrastructural spending surge with mega projects like the Circle and Downtown line, Coastal Expressway, Sports Hub and Youth Olympic Village will healthily sustain PANU's pipeline for the next 2-5 years.
We project a pay out of >65% of FY08F PATMI to sustain a healthy yield of 7.5%. A divestment of freehold Octagon property at current market value could yield up to S$0.036/share cash which could be partially distributed to shareholders via a special dividend. We have not factored in a divestment of freehold Octagon property at S$20m that could yield up to S$0.036/share.
Based on our DCF model (WACC: 10.1%, Terminal: 2%), we derive a fair value of S$1.03, cross checked with a 14.7x FY08F PER (vs. peer FY08 PER of 20x). Initiate coverage on PANU with BUY. (65% upside). (Kelly Chia)
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- Wilmar International is establishing a US$136m JV firm with Russia's Nizhny Novgorod Fats & Oils Group and Ukraine's Delta Exports Pte Ltd.
- SIA is adding flights to Australia, Vietnam and Dubai, but suspending service on two other routes, in response to 'changing patterns in demand for travel'.
- The Al-Futtaim offer for Robinson & Co is now unconditional, and at a higher offer price of S$7.20 per share. The S$619m offer, which will close on 30 April, has been accepted by Indonesia's Lippo Group.
- Hosen Group is planning the demolition of its existing single storey JTC standard factory and the construction of a new office cum warehouse at Pandan Loop for S$6.29m.
- The average occupancy rate for business parks has hit a five-year high, crossing the 90% mark.
- The public tender for the Ten Mile Junction development site closed with just two bids received. A Kheng Leong unit emerged as the top bidder, offering S$162.4 psf ppr or S$61m.
- Indonesia may join China, India, Vietnam and Egypt in curbing rice exports as declining inventories threaten to spark unrest around Asia.
- The Land Transport Authority has turned down SMRT Corp's request for a reduction in the S$387,176 penalty imposed for an incident in January that disrupted train services.
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