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4 Stocks This Week

4 Stocks This Week (Construction) [27 July 2018] Chip Eng Seng; DLF Holdings; Koh Brothers; Nordic Group

A recovery for building and construction stocks is still a work-in-progress.


On Thursday, Facebook saw its share price dive by 19%, causing its market capitalisation plummet by US$120 billion ($163.4 billion) overnight. It was the largest ever one-day market capitalisation loss ever recorded in the history of the US stock market, breaking the record US$90 billion set by Intel in 2000, in the aftermath of the bursting of the dot-com bubble.

To put things in perspective, Facebook’s slump on Thursday would have been almost equivalent to the entire market capitalisation of Singapore’s three local banks, DBS ($69.3 billion), OCBC ($48.8 billion) and UOB ($45.5 billion) put together, which are valued at almost $163.6 billion.

At home, Singapore’s construction sector is also falling on hard times due to weak demand in the private sector. In Q2 2018, Singapore’s construction sector recorded a 4.4% year-on-year (YOY) decline. While the decline was smaller compared with previous quarters, the construction sector has continued to weigh down Singapore’s GDP growth.

In addition, the construction sector has been hammered by a series of bad news. Earlier this month, we covered how property stocks were hit hard by new property cooling measures. These cooling measures are expected to have a dampening effect on private sector construction.

Additionally, uncertainty over the multibillion dollar Kuala Lumpur-Singapore High Speed Rail (HSR) project has also been unwelcome news to the construction sector. Initially, construction plans were expected to commence in 2019, but after the Malaysian opposition coalition Pakatan Harapan took office, the Malaysian government has considered postponing and even terminating the project due to concerns over high costs. If the entire project is terminated, Singapore’s construction firms could be getting the short end of the stick.

On this week’s edition of 4 Stocks This Week, we will examine 4 construction and engineering stocks listed on SGX.

Read Also: 5 Important Investment Strategies We Learnt From Temasek (That You Should Know As Well)

Chip Eng Seng Corporation Ltd (SGX: C29)

Chip Eng Seng (CES) is a construction and property group. CES’s construction business is run by Chip Eng Seng Contractors (CESC), while CEL Development runs CES’s property investment business.

In May, CES announced that its revenue for Q1 2018 jumped 22.3% year-on-year, from $167.1 million to $204.3 million. However, higher administrative expenses due primarily to higher depreciation charges and foreign exchange losses, combined with a higher effective tax rate, caused CES’s net profit to fall from $8.6 million in Q1 2017 to $6.1 million in Q1 2018, or 30%.

Earlier this month, CES announced that its subsidiary had entered into a sale and purchase agreement to acquire 70% of White Lodge Education Group from Navis Capital for $13.3 million. CES says that the investment presents the company a ready platform to expand its footprint in the pre-school education segment.

After property cooling measures were introduced on 6 July, CES’s share price fell by over 7%, from $0.85 to $0.79. On the flipside, Park Colonial, a condominium project jointly developed by CES’s property arm CEL Development, Heeton Holdings and KSH Holdings, successfully sold 310 of its 805 units the night before, as buyers scrambled to avoid property curbs.

However, this sell-off did not appear to shake CES’s Chairman and CEO Raymond Chia Lee Meng. On 13 July, Mr Chia bought 5 million shares for $2.77 million, increasing his total direct and deemed interest in CES from 4.16% to 4.93%.

With a market cap of $503.9 million, CES’s share price closed at $0.805 this week.

Read Also: What The Latest Round Of Cooling Measures For Singapore’s Property Market Means For Investors

DLF Holdings Limited (SGX: KUX)

DLF Holdings is a mechanical & electrical (M&E) engineering services and solutions provider in Singapore and Maldives.

According to DLF’s prospectus, DLF’S revenue has increased from $18.7 million in 2016 to $21.5 million in 2017, or 15%. This was driven by much higher revenue from Turnkey Contracting Services, which nearly tripled from $3.5 million in 2016 to $10.4 million in 2017. This was mainly attributable to higher revenue recognition due to the substantial completion of Phase 2 of the Maldives Project.

This boosted DLF’s net profit from $2.0 million in 2016 to $3.4 million in 2017, or 70%.

DLF’s Initial Public Offering (IPO) was done through a placement of 18.5 million shares at $0.23 per share. Investors were initially enthusiastic about DLF’s IPO, which was fully-subscribed and raised gross proceeds of $4.26 million. Out of the money raised, $1 million will be invested to explore possible merger and acquisition (M&A) opportunities, while the rest would be ploughed back into general working capital as the company hires more professional and technical personnel.

However, when DLF shares were traded on the SGX Catalist for the first time on Wednesday, DLF’s share price plunged by almost 27%, closing at $0.169 per share on its first trading day.

With a market cap of $22.2 million, DLF’s share price closed at $0.18 this week.

Read Also: Half-Time Report: How IPOs In Singapore Are Faring In 2018?

Koh Brothers Group Limited (SGX: K75)

Koh Brothers Group is an established construction, property development and specialist engineering solutions provider, with over 40 subsidiaries and associated companies spread across Asia.

Koh Brothers is also the largest single shareholder of Koh Brothers Eco Engineering (KBEE) Limited, owning 482.1 million shares, which is equal to a 64.59% stake. Based on KBEE’s last closing price of $0.068 per share, KBG’s stake would be worth approximately $32.8 million.

In May, Koh Brothers announced that its revenue for the first quarter fell by 24% YOY, from $88.8 million in Q1 2017 to $67.1 million in Q1 2018.  This was mainly due to a lower percentage of revenue recognised from its construction division.

Nevertheless, Koh Brothers reported that its profit rose by 13% YOY, to $1.2 million on the back of higher profits recognised from its completion of its Westwood Residences Executive Condominium project.

In addition, Koh Brothers Group’s first project in South Korea, a mixed-use freehold development called Nonhyeon I’PARK, has been 96% sold within three months of its launch. This is expected to add to the group’s bottom line in the near future.

Koh Brothers Managing Director and CEO Francis Koh remains bullish on Singapore’s property market, saying his company will still tender for one or two more mass market sites in Singapore despite the government’s property cooling measures.

Despite this string of good news, its share price is down nearly 18% year-to-date (YTD). With a market cap of $113.4 million, Koh Brothers Group’s share price closed at $0.275 this week.

Read Also: Affected By Property Cooling Measures? Here Are 4 Ways You Can Invest Your Money Instead

Nordic Group Limited (SGX: MR7)

Nordic Group is a construction engineering company headquartered in Singapore, which primarily serves marine, offshore oil and gas, petrochemical, pharmaceutical, infrastructure and public environment agencies.

As of 31 March 2018, Nordic’s outstanding order book including maintenance contracts stood at $99.3 million. These orders are projected to generate revenue for Nordic until 2021.

In May, Nordic announced that it secured $6.1 million of contracts through 2020. Most recently in July, Nordic secured another $13 million of contracts.

In May, Nordic announced that first quarter revenue increased by 14% YOY, from $19.9 million in Q1 2017 to $22.7 million in Q1 2018. This was mostly due to higher revenue from Maintenance Services, which jumped by 71% from $5.5 million in Q1 2017 to $9.3 million in Q1 2018.

This was primarily because of Nordic’s acquisition of Ensure Engineering in April 2017. Nordic had given a total consideration sum of $17.3 million to acquire the entire issued and paid-up share capital of Ensure Engineering.

On the cost side, administrative expenses jumped from $2.0 million to $2.9 million, or 45%, due to higher operating costs incurred by Ensure. As a result, net profit grew 22% YOY, from $2.8 million in Q1 2017 to $3.4 million in Q1 2018.

Despite better performance, Nordic’s share price has fallen by over 11% YTD. With a market cap of $194.6 million, Nordic’s share price closed at $0.495 this week.

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