Monday, April 24, 2017

Review of Singapore's Construction Sector - Part 2

This is Part 2 of the Review of the Singapore Construction Sector.

Part 1 was meant as a more qualitative approach. Part 2 will be using a quantitative approach instead.

Do read up on Part 1 here.

Prior to this writing, SG Thumbtack Investor has pointed out on InvestingNote, this maybe too much a generalization of the companies within the construction industry.
Read his full comments via the link!
I totally agreed on this point as I may have leave out some "good" companies in part 2 of this review. So in the end, I decided to do the review with all the companies again. 

However, I also do not want to deem my initial effort as "wasteful". So I decided to come out a contrarian approach to determine the companies I want to review - a scoring system.

By picking out the information from SGX Stockfacts (Based on the information on 21st April 2017 after trading hours), I selected Dividend Yield, Price to Book, Price to Earning and Debt to Equity as criteria for the scoring (I understand the numbers may not be exactly correct, but its the "cheapest" source to get the data).

I also include the segment I deem the company to be in and my conclusion that if I will include the company in my next review.

The scoring will be:

Debt to Equity: Below 25% - 1 point, 25% to 50% - 0 point, Above 50% - (-1) point
(25% as a cut off point is my personal preference.)

Price to Earnings: Below 11 - 1 point, Above 11 - 0 point, Equal to 0 - (-1) point
(I deem anything below 10 to be undervalued. 11 is to take into account those companies that are borderline cases. Equal to 0 is deem as making losses.)

Dividend Yield: Above 2.8% - 1 point, Below 2.8% - 0 point
(3% is my personal preference. 2.8% is to take into account those companies that are borderline cases.)

Price to Book: Below 1.1 - 1 point, Above 1.1 - 0 point.
(I deem anything below 1 to be undervalued. 1.1 is to take into account those companies that are borderline cases.)

Deem to be "In/Out" this review: "In" - 1 point, "Out" - 0 point.

The full scoring as the picture below:

The full list

With that I will be looking into those companies that passed the scoring system (with 3 and above points):
  • T T J Holdings Limited
  • OKP Holdings Limited
  • Nam Lee Pressed Metal Industries Limited
  • Keong Hong Holdings Limited
  • King Wan Corporation Limited
  • Figtree Holdings Limited
  • Tai Sin Electric Limited
  • Swee Hong Limited
  • Lum Chang Holdings Limited
  • Transit-Mixed Concrete Ltd
  • Tiong Seng Holdings Limited
  • BBR Holdings (S) Ltd
  • Kori Holdings Limited
  • Huationg Global Limited
  • KSH Holdings Limited
This will be further reviewed in the final revelation of this trilogy.

Before I end, I believe it will be good to look into each segment to decide if the segment has any similar characteristics that investors should take note of.

Civil


More than half of the companies in this category is in my next review list. This is similar to my conclusion in part 1. 

In terms of PE ratio, expect for 2 companies making losses and 2 other companies that seem to be overvalued in terms of earnings, the rest seem to have a good financial year as the PE ratio is rather low. 

More than 60% of the companies in this segment gave dividend. 

As for PB ratio, except for Swee Hong and Koh Brothers Eco, most of them are below 1.

Industrial/Commercial


There are too little counters to do a good comparison. However, it seems that either you are doing very well in this segment, or you do very badly. If you are interested in this segment, a deeper analysis will be required.

Residential


For this segment, an interesting observation is that many of the counters has high debt. 1 of the reason I can think of is that most of them also diversified into property development or taken up a minority share in the development they are constructing. Therefore, they decided to use debt to finance this portion of their diversification. This debt will be "expected" to be paid off in the future once the property attains TOP and is "fully sold out".

The above is also indicated in their PB ratio as 75% of them are below 1. On the other hand, 58% of the companies gave out dividends yield of more than 3%.

Materials


Despite having more companies, only 2 companies from this segment falls into my next review. 

Only 25% of the companies have a low PE ratio of below 10. This may have meant that the companies in this segment could be overvalued. Their low earnings will have affected their dividend payout, resulting in only 33% of the companies giving out a reasonable dividend yield of more than 3%. 

Thus, on an overall generalization basis, this group of companies seems to be overvalued at their current price.

Sub-Contractors


Similarly, the low number of companies in this segment makes it hard to make a judgement. However, from the figures, it seems that the performance of this group of companies is not up to par with only 1 counter falling into my next review list. This also seems to be in line with my initial view.

With that, I will be doing more research on the list of companies I stated above for the final write up.

For those interested in understanding a bit more of my Contrarian Approach, I will be having a short paid seminar on 28th of April. Do click on this link to know more on the seminar! Thanks for your support!

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