With a strong project pipeline driven by the expansion of two integrated resorts and Changi Airport Terminal 5 in 2026, PhillipCapital analyst Paul Chew is maintaining his “overweight” call on the construction, building material and worker accommodations sector.
Chew has “buy” calls for Wee Hur Holdings and Pan-United Limited, and "accumulate" calls for Centurion Corporation and BRC Asia , with target prices of 62 cents, 68 cents, $1.02 and $2.80 respectively.
In his 2024 review of Singapore equities, Chew zooms in on the sector, and spells out the trends that have emerged from the year.
The construction output grew 8.9% y-o-y in the first 10 months of 2024, as companies completed project backlogs from the pandemic and experienced a steady demand.
The analyst notes that at the same time, the trailing 12 months of contracts awarded are also at record levels of $44 billion, a 36% y-o-y increase which translates to output in the next 12 to 18 months.
Meanwhile, the prices of building materials remain stable. Steel rebars began its descent in early 2023 and are currently about -9.8% y-o-y, Chew notes, while prices of cement and ready-mixed concrete were stable and still above pre-Covid-19 levels.
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The total demand for worker accommodations increased only by 0.4% h-o-h in June 2024, less than expected, considering the previous y-o-y increase in 2023 was 6%, implying a slower demand for foreign migrant workers.
The Building and Construction Authority (BCA) estimates that there will be between $31 billion and $38 billion worth of construction demand from 2024 to 2028, higher than average pre-pandemic levels with the expansion of the two integrated resorts and the commencement of Changi Airport Terminal 5 next year.
“Demand for worker accommodations is expected to remain strong due to the strong pipeline of construction projects,” notes Chew.
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In addition, there is also a strong pipeline for public housing projects. By the first 10 months of 2024, the Housing and Development Board (HDB) had already delivered 21,225 new flats, almost reaching the previous high of 21,393 flats in 2023.
According to HDB, they are on track and committed to launching 100,000 flats from 2021 to 2025, representing an about 3.2% CAGR growth of HDB units launched from FY2023 to FY2025.
For Wee Hur, Chew expects revenue and profit growth from the new 10,500-bed worker dormitory, Pioneer Lodge, which starts operations in FY2025.
The sale of the group’s purpose-built student accommodation (PBSA) portfolio is also expected to yield about $320 million in cash, raising the chance of special dividends, he notes.
The group previously paid out about $15.9 million worth of special dividends after receiving $85 million higher cash balances y-o-y in FY2012 from completing the Harvest @ Woodlands industrial project.
For Pan-United, Chew says its low-carbon products could set it apart as customers adopt and transition towards low-carbon solutions in their construction designs, and low-carbon products now account for more than 50% of its 1HFY2024 revenue.
Chew expects Centurion’s completion of its 1650-bed worker dormitory in Westlite Ubi to drive revenue and profit growth. Its location is favorable to the East due to less regional supply, and he believes 5%-10% higher rental rates can be charged for it.
Finally, for BRC Asia, Chew expects revenue and profits to be driven by a strong order book from the expansion of the two integrated resorts and Changi Airport terminal 5. He expects dividend yields to remain high around 7% for FY2025.
