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Contracts from upcoming IRs, petrochem plants will boost industry: Goldman Sachs

Singapore’s construction spending is forecast to hit $55 billion by 2011, buoyed by contracts to be awarded for the integrated resorts (IRs), and petrochemical plants at Jurong Island, Goldman Sachs said in a report yesterday.

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Total contracts awarded this year should come in at the high end of a $17-$19 billion range forecast by the Building and Construction Authority, indicating a 20 per cent jump this year from $16.1 billion in 2006, said the investment bank.

Goldman Sachs added that construction orders are set to reach a high by mid-2008, surpassing the previous cyclical peak of $23 billion in 1997.

‘The construction sector is on a full swing to recovery and we expect a multi-year acceleration in activities,’ said Goldman Sachs analysts Chee Yoke Fong and Rick Loo.

Developers of the two integrated resorts at Marina Bay and Sentosa - which will cost a total of $10.25 billion to build - are set to award contracts over the next three to six months, along with the developer of a new sports facility.

The Sports Hub is due for completion in 2011, at a cost estimated at between $650 million and $800 million.

ExxonMobil, the world’s largest oil company, may also award construction orders for a US$4 billion petrochemical complex at Jurong Island, known as the Singapore Parallel Train project.

While Exxon will only finalise its plans for the plant in about a month’s time, Goldman Sachs said ‘preparation works may have started in anticipation of construction commencing in mid-2008′. Another petrochemicals company, Shell, started construction of a US$3 billion project on Jurong Island in March. Goldman Sachs expects building activities to peak in 2008-09.

The hot property market is likely to churn out more contracts for residential developments as well, while the new Marina Bay Financial Centre should bring in more building orders, Goldman Sachs said.

The US investment bank’s customised basket of construction-related stocks has risen 41 per cent since it was introduced at the end of March, and Goldman expects further upside with the construction boom.

Goldman named crane rental company Tat Hong Holdings and structural steelworks company Yongnam Holdings in the same report, saying both subcontractors hold higher pricing power due to their niche market positions.

‘They (Tat Hong and Yongnam) will emerge as front runners among their peers, and enjoy higher margins in the current environment of buoyant demand and tight capacity,’ said the analysts.

Tat Hong is currently supplying more than 30 cranes to the Marina Bay casino project and could rent out more, given that it is possible that up to 80 cranes would be needed for both casinos during peak periods, the analysts said.

Meanwhile, Yongnam, a bidder for the Marina Bay casino project, expects the first set of structural steelworks contracts to be announced in August.

Goldman Sachs had a ‘buy’ rating for both stocks, with a 12-month price target of $2.21 for Tat Hong, and a price target of $0.46 for Yongnam.

At the end of yesterday’s trading, Tat Hong shares closed 1.4 per cent higher at $2.20, while Yongnam’s rose 1.2 per cent to finish at $0.425.

Source : Business Times - 22 Jun 2007

A CONSORTIUM linked to contractor Straits Construction was yesterday picked to develop the second public housing project to be built and sold by the private sector.

Straits Construction subsidiary Hoi Hup Realty, Sunway Concrete Products and Oriental Worldwide Investments emerged as the front runner in the tender last month for a 1.8ha site in Boon Keng Road where the project will be located.

Its bid of $170.2 million was about 30 per cent more than the next highest bidder, Sim Lian Land, which is building the first such project under this scheme in Tampines.

Under the programme, which aims to create more variety in housing types, private developers get to design, build, price and sell flats.

These homes can be bought only by those eligible for public housing, which means that buyers’ monthly household income cannot exceed $8,000.

On the flip side, buyers can use government housing grants to offset the cost of these flats.

The consortium will have to set aside at least 30 per cent of the flats it builds for four-room or smaller units.

Hoi Hup said last week that the project, which could have about 600 to 700 homes, can be launched within six to nine months.

The first such development, The Premiere@Tampines, drew close to 6,000 applications for its 616 units.

The homes came with condominium-like features, such as generous balconies, floor-to-ceiling wardrobes and air-conditioning units. They are expected to be ready by 2009.

Source : Straits Times - 7 Jun 2007

HONG LEONG ASIA (HLA), a subsidiary of Singapore’s Hong Leong Group, has been awarded an exclusive contract to supply ready-mixed concrete to the Marina Bay Sands integrated resort (IR). The contract could be worth as much as $210 million.

Under the contract, HLA will supply about 800,000-1.2 million cubic metres of ready-mixed concrete for the construction of the IR until it is completed in 2009, the company said yesterday.

While HLA declined to provide the value of the contract, industry players said that price of a cubic metre of ready-mixed concrete ranges between $167-$175 at present. HLA’s contract could, therefore, be worth anything between $133.6-$210 million depending on the price of and amount of ready-mixed concrete it supplies.

‘This award, as the sole supplier of ready-mix concrete to the Marina Bay Sands integrated resort, will have a positive effect on the group’s building materials unit,’ said HLA CEO Teo Tong Kooi.

The contract from Marina Bay Sands follows an earlier one awarded to CSC Holdings subsidiary L&M Foundation Specialist Pte Ltd. Last month, CSC Holdings won a $240 million deal for piling and diaphragm walls for the IR.

Contracts awarded by the IR are expected to boost the construction sector here - set to grow in 2007 after years of being in the doldrums. Industry regulator Building and Construction Authority expects deals awarded here to reach $17-19 billion this year. HLA’s shares climbed 10 cents to close at $2.73 yesterday. The stock has surged 60.6 per cent since the start of the year.

Source : Business Times - 2 Jun 2007

BCA dismisses contractors’ claims on excessive concrete prices since sand ban; says positive steps in pipeline on cost-sharing

The Building and Construction Authority (BCA) has dismissed claims made by contractors that concrete suppliers have been profiteering from high concrete prices.

In a statement to The Straits Times yesterday, BCA said it had examined the documents submitted by the Singapore Contractors Association Limited (Scal).

BCA concluded that ‘they do not provide sufficient basis to substantiate the allegations of profiteering’.

This ‘thick file’ of evidence on profiteering - making excessive profits on goods in short supply - was raised in Parliament by Ang Mo Kio GRC MP Lee Bee Wah on Monday.

She asked if the Ministry of National Development (MND) had responded.

BCA said the file, submitted on Feb 23, contained copies of contracts, orders, and terms and conditions signed between contractors and ready-mixed concrete companies before and after the Indonesian ban on land sand exports.

Although Scal’s claims have been dismissed, the industry has been taking positive steps towards resolving the issue of sharing costs.

BCA said it was aware the Construction Industry Joint Committee’s (CIJC) - which represents the construction industry - is currently finalising a ‘practice note’ with other industry players on the increase in costs for private sector projects affected by the sand ban.

This note will contain recommended guidelines on how the cost should be shared between concrete suppliers, contractors and developers, said CIJC chairman Chang Meng Teng.

‘We’re trying to follow the Government’s 75-25 per cent formula, but we recognise this is probably not possible in all cases,’ said Mr Chang.

After the sand ban, the price of a tonne of sand went up from $25 to $60.

The disruption of granite supplies from Indonesia made matters worse, with concrete prices soaring from $70 per cubic metre to $200 per cubic metre.

Prices for concrete have recently stabilised at around $170 per cubic metre.

One concrete supplier, who declined to be named, said there was no reason to talk about profiteering because prices are not fixed.

‘There’s still competition between us, and prices fluctuate with the market. So during uncertain times, it was only natural that it moved up,’ he said.

He also noted that things were moving towards resolution between the parties involved.

In response to BCA’s statement, Ms Lee said that after three months of waiting for a response, some contractors were disappointed.

If more information was needed, BCA could have asked for it, she said.

Mr Simon Lee, executive director of Scal, maintained that its report showed that the increase in sand prices did not correspond with the hike in concrete prices.

Sand is an essential ingredient in concrete.

The report, which focused only on the effect of the price increase of sand, stated clearly contractors’ expected losses if they were not compensated, he said.

To encourage more concrete suppliers to enter the market, the Government has released land for new concrete batching plants.

National Development Minister Mah Bow Tan said in Parliament on Monday that if necessary, the Government ‘is prepared to release more if there is demand for it’.

Source : Straits Times - 25 May 2007

BCA data shows region accounted for half of total exports from sector

CONSTRUCTION exports to the Middle East surged five times to $1 billion last year, though the total value of exports continued to decline.

According to figures from the Building and Construction Authority (BCA), construction exports to the Middle East counted for half of all the sector’s exports. Qatar and the United Arab Emirates (UAE) were the most popular destinations.

In 2005, construction exports to the Middle East worth $203 million counted for only 10 per cent of all sector exports. Unfortunately, construction exports to other regions did not do as well last year.

Those to South-east Asia dipped to $539 million from $581 million, counting for 29 per cent of construction exports in 2005 and 26 per cent last year. Malaysia was the largest export market with a 30 per cent share, followed by Indonesia and Brunei.

Singapore contractors were also less busy in China and India - exports to China plunged from $414 million to $144 million last year, while exports to India fell to $93 million from $222 million. BCA said the fall in exports to China could be due to a drop in demand for pure construction services offered by foreign firms. Demand for environment-related projects such as water treatment plants by Singapore firms remained strong, it said.

Singapore firms also clinched fewer overseas consultancy projects in fewer countries last year. They won 360 projects in 28 countries compared with 450 projects in 35 countries in 2005. BCA says this could be due to more domestic job opportunities, given the upturn in the local construction industry.

China and India remained the largest export destinations for local consultants, counting for almost half of all projects secured in 2006. However, the Middle East also sparkled as a rising export destination for consultancy services, with the number of projects rising to 45 last year from just five in 2003.

Construction exports on the whole continued their two-year decline. The value of overseas construction contracts hit a 10-year high of $2.5 billion in 2004 but fell to $2.2 billion in 2005, then dipped further to $2.1 billion last year.

Ministry of Trade and Industry figures showed the construction sector grew a sizzling 9.7 per cent in the first quarter of this year.

Source : Business Times - 23 May 2007