Construction sector: is it built on sand?
"A correction is going to take place. The question is: how severe?"
This is how Winston Liew, analyst at OCBC Investment Research, is quoted by Reuters as describing the construction sector. The buying frenzy seems to be abating, fewer deals are being struck, private home prices are plateauing, the report says.
Well, fundamental investors can make their own guesses about that. We're not financial analysts, but you don't have to be Einstein to figure out how ugly it's going to get for some stocks if you applied straight-forward fundamental benchmarks. We value investors care about these far more than any blue-sky hype or earnings potential. And our very un-scientific survey found that while some stocks are just way out there price-wise, others still fall within the value framework.
Price-To-Book
On a price-to-book basis, there are few "cheap" stocks. Reuters data shows Bukit Sembawang Estates trading at 2.9x book value, Lian Beng is trading at 3.56x book, Koh Brothers at 3.7x and Chip Eng Seng at 5.6x.
You've also got Top Global at 10.6x, See Hup Seng at 11.6x and Abterra at (do my eyes deceive me?!) 315.3x.
If you take the true meaning of value investing as trading below book value, there are few to choose from: Guthrie, Permasteel and Lion Teck.
Clearly, in the event of a collapse in the property market, not every stock is going to return to book value. But what if they did?!
The problem with book value is that construction companies are not as easily measured by this. Afterall, how many assets do they actually carry on the books?
Happy to debate this with you.
Price-To-Earnings
Price-to-earnings is also not a perfect ratio, in my view, because of the way construction companies recognise earnings. And anyway, profit is an imperfect measurement of a company's financial health because of the various non-cash measures that influence it. Still, on a P/E basis, Bukit Sembawang and Permasteel are trading at 21x, See Hup Seng 25x, Top Global 43x and Lian Beng 55x.
Guthrie's, by comparison is a sanguine 9.2x, Lion Teck 7.4x and Koh Brothers 6.1x.
Yield
To fall within value criteria, few construction companies can risk any downside. Reuters data shows us TEE International is best placed with a yield of 3.2% and Low Keng with 3.9%. Few others transcend the 2% mark.
Every drunk fool looks funny when they party hard on the dancefloor and everyone else is drunk, too. But when the music stops, the lights come on and the audience sobers up, they'll be seen for what they are.
Mark Laudi
ArchivesThis is how Winston Liew, analyst at OCBC Investment Research, is quoted by Reuters as describing the construction sector. The buying frenzy seems to be abating, fewer deals are being struck, private home prices are plateauing, the report says.
Well, fundamental investors can make their own guesses about that. We're not financial analysts, but you don't have to be Einstein to figure out how ugly it's going to get for some stocks if you applied straight-forward fundamental benchmarks. We value investors care about these far more than any blue-sky hype or earnings potential. And our very un-scientific survey found that while some stocks are just way out there price-wise, others still fall within the value framework.
Price-To-Book
On a price-to-book basis, there are few "cheap" stocks. Reuters data shows Bukit Sembawang Estates trading at 2.9x book value, Lian Beng is trading at 3.56x book, Koh Brothers at 3.7x and Chip Eng Seng at 5.6x.
You've also got Top Global at 10.6x, See Hup Seng at 11.6x and Abterra at (do my eyes deceive me?!) 315.3x.
If you take the true meaning of value investing as trading below book value, there are few to choose from: Guthrie, Permasteel and Lion Teck.
Clearly, in the event of a collapse in the property market, not every stock is going to return to book value. But what if they did?!
The problem with book value is that construction companies are not as easily measured by this. Afterall, how many assets do they actually carry on the books?
Happy to debate this with you.
Price-To-Earnings
Price-to-earnings is also not a perfect ratio, in my view, because of the way construction companies recognise earnings. And anyway, profit is an imperfect measurement of a company's financial health because of the various non-cash measures that influence it. Still, on a P/E basis, Bukit Sembawang and Permasteel are trading at 21x, See Hup Seng 25x, Top Global 43x and Lian Beng 55x.
Guthrie's, by comparison is a sanguine 9.2x, Lion Teck 7.4x and Koh Brothers 6.1x.
Yield
To fall within value criteria, few construction companies can risk any downside. Reuters data shows us TEE International is best placed with a yield of 3.2% and Low Keng with 3.9%. Few others transcend the 2% mark.
Every drunk fool looks funny when they party hard on the dancefloor and everyone else is drunk, too. But when the music stops, the lights come on and the audience sobers up, they'll be seen for what they are.
Mark Laudi
Labels: Bukit Sembawang, Chip Eng Seng, construction stocks, Koh Brothers, Lian Beng, Singapore Property
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