Construction recovery uneven amid manpower, supply constraints
Firms see top, bottom lines increase, but also higher costs, weaker margins
Singapore
WHILE companies within the local construction sector have begun to recover from the effects of the Covid-19 "circuit breaker" measures last year, it seems that the rising tide within the industry has not lifted all boats equally.
For instance, construction and property group Chip Eng Seng posted a 182.2 per cent jump in construction revenue to S$164.6 million for the half-year ended June 30, 2021.It even beat its previous revenue figures from the corresponding period in 2019, when it posted construction revenue of S$82.5 million.
But peer Wee Hur Holdings has announced it expects to report net losses for the half-year ended June, due to additional costs required to complete projects for its construction arm.
Meanwhile, construction group OKP Holdings' net profit fell by 39.4 per cent to S$976,000 for the half-year ended June, due to lower payouts and rebates from the government.
Among suppliers of building materials, steel trader and scaffolding supplier Union Steel said in its latest profit guidance on Aug 10 that it expects to report a significant increase in net profit for the financial year ended June, on improved performance in its metal business and the strong turnaround in its marine-deck equipment business.
Pan-United, Singapore's largest producer of ready-mix concrete (RMC), reported revenue growth of 45 per cent to S$276.6 million in the half-year ended June.
The mixed results are reflective of the turmoil that the construction industry has experienced over the past year.
Most construction plays that have reported financials for the half-year to June recorded sharp increases in top and bottom lines.
But many also reported higher costs, weaker margins and difficulty getting labour. That has affected each company in different ways.
Turner & Townsend's Singapore market insight report for August 2021 said that supply and skilled manpower constraints, coupled with a fall in private-sector investments, have weighed the industry down.
Turner & Townsend managing director for Singapore, Vietnam and Philippines Khoo Sze Boon anticipates that private-sector work demand will increase in 2022.
"This is taking into consideration that many of the current backlog projects would have been completed and the manpower shortage issues would have been resolved by then," he said.
The real-estate consultancy expects tender prices to remain volatile for the rest of the year, as global supply chains are disrupted while demand remains high, and prices could rise 10-15 per cent higher than its earlier forecast range of 6-10 per cent.
Their projections of high construction costs match the experiences of building-materials suppliers that are reporting strong sales numbers and good margins.
Phillip Securities Research analyst Tan Jie Hui noted in an Aug 6 report on Pan-United that while RMC (ready-mixed concrete) prices rose 3.6 per cent year on year due to higher raw-material prices, the company's gross margins edged up to 22.1 per cent, from 21.1 per cent a year ago with improved cost efficiencies.
Ms Tan believes the higher margins are sustainable.
Despite facing manpower constraints due to the re-tightening of foreign labour supply, steel mesh manufacturer BRC Asia's revenue rose by 68.2 per cent for the nine months ended June, to S$832.9 million.
In a research note published on Wednesday, UOB Kay Hian analysts noted that the value-add of the construction sector remained 31.6 per cent below pre-pandemic levels.
But it added that the reopening of borders and re-entry of foreign labour will be positive for BRC and the industry as a whole.
Shares of the construction plays have moved largely in tandem with their financial performance.
Shares of property group Chip Eng Seng closed up 0.5 Singapore cent or 1.1 per cent at 45.5 cents, while Union Steel shares rose 25 per cent or 11 cents to close at 55 cents on Wednesday.
Shares of Wee Hur closed down 2.4 per cent or 0.5 cent at 20.5 cents, and shares of OKP closed flat at 19.4 cents.
Both BRC Asia and Pan-United closed flat at S$1.51 and 32.5 cents respectively on Wednesday.
