Saturday, November 30, 2013

Landuse Master plan 2013- What is my favorite?

Under the landuse master plan, they plan to add 200,000 housing by 2016 and 700,000 by 2030. There are plans to develop Tampines North, Bidadari and punggol. 

See: http://www.mnd.gov.sg/landuseplan/e-book/

Under the Draft masterplan 2013, there are further details on how existing estates will be further developed.

They seems to be plenty of construction of buildings to go on till 2016 and beyond

What counters will benefit?

Property and construction counters come straight to mind.

Property counters are still affected by cooling measures and with the Hugh supply of housing, maybe their launches will be affected adversely too. So construction companies seem to be a good buy.

The problem with most construction companies, or buying into a construction company are as follow:

1) Fierce competition causing margins to be low. There are many construction companies in Singapore. Some of the stronger companies might not have problems winning contracts, but the problem is their margins. In the case of piling specialist CSC, they have a good track record of improving topline but not bottom line.

2)Some have net margin of around 5%.Also, it is highly capital-intensive and most construction companies need to gear up rather significantly to fund their operations. Then, there are problems of cost overrun, like the recent case of industry leader Yongnam. As such, the FCF, or oven OCF is highly volatile

How about upstream companies of construction, companies that supplied steel, concrete to the construction.

These companies are my favorites, there are Transit-Mixed Concrete Limited, Lee metals, Pan-united and the likes.

However, the choice get further dwindle down, when

1) Transit-mixed concrete is highly inliquid, the bid and sell spread can be wide and most days, there is no trading at all.

2) Counter already had a good run and is fairly valued, like pan-united.

Lee metals and BRC asia supplied reinforced steel and welded steel needed for construction of building. Both are market leaders in the area and are authorized suppliers to HDB. Competition in this area is also increasing. Between the two, I prefer Lee metals for 3 simple reasons.

1) Lee metals has higher topline, and bigger market share

2) Lee metals is a more stable cash-generating business. Lee metals is rather highly geared for its inventories, but the OCF for the past 6 years is highly positive, in fact they have a average FCF (cash after capex and finance costs) of 1.3 cents. Even in years when they went into a JV of property development, they still manage to generate FCF. 

3) It is consistent in paying dividends.

In their business prospectus, their customers include LTA and they supply steel to the north-south MRT line project before, whether that is under its merchandising arm or fabrication arm, I am not so sure. There is a strong pipeline of MRT related projects too, although I am not too sure if Lee metals will supply steel to companies building the stations. Yongnam seem a more direct beneficiary of this, lee metals at best, is a sub-sub supplier. 

 

 

5 comments:

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