Construction demand hit S$24.5bn, just marginally ahead of the 1997 peak of
S$24.4 bn. With the ongoing construction of mega-projects like the BFC, two
IRs, and various residential and commercial projects, the outlook for
construction sector remains robust. BCA forecasts construction demand to
hit a new zenith of $23-27bn in 2008. Construction output in terms of
certified progress payment is projected to hit S$19-21 bn in 2008 from
$16.5bn in 2007.
Prices for cement, granite, ready-mixed concrete (RMC) and steel bars have
increased between 25-35% since the beginning of 2007, and are expected to
remain firm in 2008. BCA expects demand for cement and RMC to grow 26% and
38% respectively in 2008. Prices are expected to grow in tandem with
robust demand, posing challenges for certain players.
We are positive on Building Material suppliers like Hong Leong Asia (BUY,
TP S$4.30) and Pan-United Corp (BUY, TP S$1.16), which should benefit from
higher prices and increase in construction activity. High material costs
lead us to be selective on niche subcontractors like KSH (BUY, TP $0.82)
who should be able to pass on the higher building material prices to the
developers. We also like Tat Hong (BUY, TP S$3.32), a company that is
leveraged on the higher construction activity but is not exposed to higher
material prices.
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