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

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.

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.

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.

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.

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).

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.

Rating: ADD, Target Price S$1.24.
We believe Boustead Project’s two ongoing public sector projects could support its earnings growth through FY21F. We also think Boustead Project could be ready for a REIT listing as early as 2020F.
See Boustead Project Share Price; Boustead Project Target Price; Boustead Project Analyst Reports; Boustead Project Dividend History; Boustead Project Announcements; Boustead Project Latest News.

Rating: ADD, Target Price S$1.90.
We like BRC Asia for its market leadership in Singapore’s reinforced steel industry, earnings visibility riding on the recovery in home market demand, and improving balance sheet strength.
See BRC Asia Share Price; BRC Asia Target Price; BRC Asia Analyst Reports; BRC Asia Dividend History; BRC Asia Announcements; BRC Asia Latest News.

Rating: ADD, Target Price S$0.28.
Yongnam’s orderbook has recovered strongly in 2019. With the rollout of North South Corridor and Changi East projects, we forecast Yongnam to return to profitability in 2H20F.
See Yongnam Share Price; Yongnam Target Price; Yongnam Analyst Reports; Yongnam Dividend History; Yongnam Announcements; Yongnam Latest News.

ONG Khang Chuen CFA CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-01-08

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