Strong Rebound for the Construction Sector in 2021

The local construction sector has been through some tough times in this pandemic period, contracting 35.9% in 2020 due to the various restrictions that led to a massive labour shortage and significant delays in construction progress across the country.

However, with Singapore adopting the endemic approach and allowing foreign workers to enter the country, the construction sector saw a significant recovery in 2021, with the sector growing by 18.7% year-on-year in 2021.

On top of that, the latest foreign worker levy rebate for the sector until March 2022 is expected to provide some form of support for the industry, as various construction firms are looking at ways to reduce its business costs.

In this article, we will be looking at the 2 construction counters, mainly:

• Hock Lian Seng Holdings Limited (SGX: J2T)
• Lian Beng Group Limited (SGX: L03)

1) Hock Lian Seng Holdings Limited (SGX: J2T)

Hock Leng Seng Holdings Limited (“Hock Lian Seng”) was founded in 1969 and for a period of over 40 years has undertaken and completed a wide range of civil engineering and infrastructure projects for both public and private sectors in Singapore. These include MRT depots, bridges, expressways, water infrastructures and other specialised marine works such as dredging, reclamation and seawall construction.

Key Statistics

Financial Performance

For its trailing 12-month period, Hock Lian Seng’s revenue jumped by 70% to S$102.43 million. The sharp rise in revenue was helped by the recovery in the progress of construction activities as well as the sale of units under its Property Development business unit.

With the topline improvement, Hock Lian Seng’s profit after tax surged by almost 150% to S$10.70 million.

Latest Contract Win

In the latest announcement dated 14 January 2022, Hock Lian Seng announced that its wholly owned subsidiary, Hock Lian Seng Infrastructure Pte. Ltd., has been awarded a Contract from Land Transport Authority for the Design and Construction of Serangoon North station and tunnels.

The awarded contract value is $454 million. Construction works for the Project are expected to start in the second quarter of 2022 with passenger service slated to commence in 2030.

With this latest contract win, this will help to boost its financial performance in the next few fiscal years given that its trailing 12 months’ revenue is only S$102.4 million.

2) Lian Beng Group Limited (SGX: L03)

Established in 1973, Lian Beng Group Limited (“Lian Beng”) is one of Singapore's major home-grown construction groups with integrated civil engineering and construction support service capabilities. The Group is principally involved in the construction of residential, industrial and commercial projects, and civil engineering projects as a main contractor.

Key Statistics

Financial Performance

For FY2021, Lian Beng’s revenue declined marginally by 7% year-on-year to S$514.49 million, with lower revenue recorded across all business segments. In particular, the revenue from its Construction Segment decreased by 7.2% from S$460.5 million in FY2020 to S$427.5 million in FY2021.

This was mainly due to the slow pace of work resumption amid manpower shortage arising from tighter border measures, disruptions in manpower deployment due to the workers’ movement control, as well as additional safe management measures implemented at the worksites.

Despite the topline decline, Lian Beng’s profit after tax grew by 4.48% year-on-year to S$35.15 million. This can be attributed to the various grants and incentives, which helped to improve its bottom line.

Latest Contract Win

In the announcement dated 18 October 2021, Lian Beng announced that its 60%-owned subsidiary, United Tec Construction Pte. Ltd., has secured a contract from United Venture Development (2021) Pte Ltd for the proposed residential flat development comprising 1 block of 24-storey and 1 block of 25-storey building (total 372 units) with basement and mezzanine basement carpark, swimming pool and communal facilities on at Ang Mo Kio Ave 1.

The contract is worth approximately S$118 million and the contract period shall be 47 months. Lastly, the Group’s order book stood at approximately S$1.4 billion as at 18 October 2021, which will provide a sustainable flow of activity through FY2026.

Conclusion

All in all, Singapore’s construction industry is expected to improve in 2022, due to the overwhelming demand from the public sector. Singapore's largest road project, the North-South Corridor, is already in the works and is set to be completed by 2027.

Further boosting the construction demand are the various civil engineering projects such as the Johor Bahru – Singapore Rapid Transit System (RTS) and the Cross Island Line (“CRL”).

That said, the risk of resurgence in the pandemic, rising manpower and material costs could also threaten to derail the sector’s growth momentum in 2022.

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