Construction & Materials - CGS-CIMB Research 2020-01-08: Sector Recovery Reaffirms BRC Buy

Construction Sector Singapore - CGS-CIMB Research  | SGinvestors.io BRC ASIA LIMITED (SGX:BEC) BOUSTEAD PROJECTS LIMITED (SGX:AVM) YONGNAM HOLDINGS LIMITED (SGX:AXB)

Construction & Materials - Sector Recovery Reaffirms BRC Buy

  • BCA announced that 2019’s total construction demand expanded 9.5% y-o-y to reach S$33.4bn, above the upper bound of its S$27bn-32bn forecast. See BCA's announcement.
  • Construction demand to remain strong in 2020F, supported by infrastructure projects. BCA also sees higher demand for construction materials in 2020F.
  • Maintain sector Overweight. Our top pick is BRC Asia (SGX:BEC).



Singapore’s construction demand hit 5-year high in 2019

  • The Building and Construction Authority (BCA) today announced that Singapore's total construction demand (value of construction contracts awarded) expanded 9.5% y-o-y in 2019 to reach S$33.4bn, above the upper bound of its S$27bn-32bn forecast.


Total construction demand to remain strong in 2020F

  • Singapore’s construction demand is expected to remain strong in 2020F, with BCA forecasting a range of S$28bn-33bn. The forecast for 2020 excludes any construction contracts by the two integrated resorts (IRs), Marina Bay Sands and Resorts World Sentosa, pending confirmation on the timeline and phasing of expansion projects.
  • BCA expects public sector construction demand to be spurred by major infrastructure projects (35% of total construction demand), including works for Changi Airport Terminal 5, Jurong Region MRT Line, and Cross Island MRT Line. We are also positive on the public residential segment. According to a blog post by National Development Minister Lawrence Wong, around 16k-17k build-to-order (BTO) flats will be launched in 2020; this is more than the BTO supply of 14.6k flats in 2019.
  • On the other hand, private sector construction demand may moderate, in view of the likely continued global economic uncertainties and current overhang in the supply of private residential housing units, according to BCA.


Expect further pick-up of construction output

  • BCA projects total construction output (progress payment) in 2020 to rise to S$30bn- 32bn, representing a 7-14% y-o-y increase from S$28bn in 2019 (2019: +5% y-o-y), supported by the improved construction demand since 2018. This should improve cash flow and help lower credit risk of construction industry, in our view.


Higher demand for construction materials in 2020F

  • We see near-term catalysts for building material companies (including steel rebars and concrete suppliers) as BCA expects accelerated demand growth in 2020F. BCA projects steel rebar demand to grow to 1.5m-1.7m tonnes in 2020F (2019: 1.4m tonnes) while ready-mixed concrete demand rise to 14m-15m m3 (2019: 12.5m m3).


Maintain sector Overweight

  • We remain positive on the construction sector, as we expect earnings improvement riding on the recovery in home market demand. BRC Asia is our top pick.


Highlighted Companies


BOUSTEAD PROJECTS LIMITED (SGX:AVM)


BRC ASIA LIMITED (SGX:BEC)


YONGNAM HOLDINGS LIMITED (SGX:AXB)






ONG Khang Chuen CFA CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-01-08
SGX Stock Analyst Report ADD MAINTAIN ADD 1.900 SAME 1.900
ADD MAINTAIN ADD 1.240 SAME 1.240
ADD MAINTAIN ADD 0.280 SAME 0.280



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