Analysis of construction companies

I have been always wanting to invest in a construction company for a few months already but didn’t free up enough time to analyse the companies. I recently concluded my analysis and will post my analysis.

I feel that the construction sector will boom in Singapore with the development of future MRT lines, new condominiums and new HDB flats. The prices of the construction companies are depressed so much that P/E ratios of most construction companies are less than 10, with some being as low as 3.

Firstly, I read analyst reports by Kim Eng and DMG on the construction sector to get an overview of the sector and the different companies involved in the sector. I also used ShareInvestor to sieve out the good construction companies by using certain criteria such as P/B, P/E, ROE, etc. The comparison of the companies are presented below.

Then, I did a financial analysis of the all companies listed in the table above, except CSC and Yongnam (negative cashflow for many years). I will present the analysis table of the individual companies and summarise my findings.

Lum Chang

Lum Chang’s revenue, equity and cash flow are not consistent even though it has the highest current ratio and lowest P/B among all the companies. On a side note, Lum Chang is currently trading “cum dividend”.

Chip Eng Seng

CES received the “Most Transparent Company Award 2010” (Runner-Up) at the recent SIAS Investors’ Choice Awards, Construction category. It has the highest NPM, ROE, ROA, dividend yield and lowest P/E ratio among all the companies in comparison. Despite all these, the revenue and cash flow are not consistent so I’m not comfortable in investing in this company even though it has many merits.

OKP

OKP’s revenue dipped only in FY2005 and FY2008. If not, it’s on a consistent rally. Its equity and cash flow is increasing consistently and its balance sheet is strong with little debt. I was torn between investing in OKP or Hock Lian Seng (HLS). In the end, I decided to invest in HLS as I felt HLS is more well-versed in the MRT construction with many projects completed for LTA versus none for OKP. Also, if OKP were to bid for a MRT project, it has to do so as a joint venture with another company as OKP doesn’t have experience in this segment.

Hock Lian Seng

I will present HLS analysis in another post as I purchased this company. I will do a separate thorough analysis on them like my previous purchases.

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