Public commuters must be breathing a sigh of relief as the government over the past weeks announced a slew of initiatives to overhaul the bus services and increase the frequency of train services. These efforts were announced with the aim of reducing traffic congestion and encourage the usage of public transport.

Overlooked and under-reported by the local media, however are plans to reduce congestion by establishing additional road networks, which will ultimately benefit the local construction firms.

As readers know, since 2007, the construction sector has started to recover, aided by buoyant property prices as well as a series of government mega-projects including Integrated Resorts, Orchard Turn, Marina Bay Financial Centre and the Kallang Sports Hub.

Stocks like Yongnam Holdings were soaring as investors piled on them anticipating them to to benefit from the construction boom. Nonetheless, the good times came to a sudden halt, following the US sub-prime woes.

However, Shares Investment (Singapore) feels that the construction sector is still a gem among Singapore equities as regardless of a slowdown in the US, the mega-projects are here to stay.

Further, the proposed construction of the $2.5b Marina Coastal Expressway and a $7b to $8b new North-South Expressway present opportunities in abundance. According to CIMB, an estimated $10b will be spent on roads alone and with the proposed MRT line extension, the figures are mindboggling to say the least.

In particular, we have zeroed in on Tat Hong Holdings (TH) and Hong Leong Asia (HLA).

PURVEYOR OF MATERIALS

HLA offers a diverse range of produce under its Consumer Products, Diesel Engines, and Industrial Packaging divisions. This portfolio gives investors a relatively cheap exposure to the Chinese consumer market. Presently, its subsidiary, Yuchai is the third-largest diesel engine manufacturer in China while another subsidary Xinfei remains the third-largest white goods producer in the country. Perhaps more alluring though is its Building Materials Group (BGM), which owns and operates PT Karimun Granite, Southeast Asia’s largest hard rock quarry operation located in the Northwest of the Indonesian island of Karimun.

From the manufacture and sale of raw materials such as quarry, ready-mix concrete, pre-cast concrete, cement, granite and steel products, BGM has become a supplier of a comprehensive range of building materials and has contributed tremendously to Singapore’s growth.

The unit’s margins had improved tremendously in 3Q07 and with contributions from the granite trading and ready-mixed concrete division on an upswing attributed to Singaporeʼs resurgent construction sector, profits had blossomed.
Going forward, BGM’s earnings momentum should be sustained by future potential awards of contracts such the Sports Hub, roads etc. We like HLA for its exposure to the Chinese economy as well as the local construction scene.

TOWERING ABOVE COMPETITORS

The largest crane rental com-pany in Asia Pacific and number one owner in the world in terms of crawler cranes, TH is building itself into a pure rental company. Currently maintaining a dual listing in Australia and Singapore, TH has a long and illustrious history, participating in many of Singaporeʼs distinguished projects like the Marina Bay MRT (Mass Rapid Transit Station) and the Singapore-Malaysia Second Link.

TH recently reported stellar 3Q08 results with revenue soaring 31%. The growth in turnover was brought down to the bottom line resulting in net earnings of $61.4m as compared to $37.2m in the corresponding period.

With the construction scene locally and abroad undergoing a revival, demand for construction equipment has hit the roof leading to higher crane rental rates and equipment sales, which benefited TH.

Commenting on its prospects, Roland Ng, THʼs President and CEO remains sanguine, citing Singapore as the epicentre of growth in Asia.

At the same time, its investment in China has started to bear fruits. Just recently, TH witnessed the listing of its 15.8% (post-IPO) associated company Yongmao on the Singapore Exchange. With the Chinese construction machinery rental market expected to be valued at $160b in 2010, TH can ill-afford to ignore this vast hinterland. Apart from Yongmao, TH has another joint venture, China Nuclear Huaxing Tat Hong Machinery Construction, which appears poised to benefit from the rental of higher capacity tower cranes.

Whatever Singapore chooses to construct in terms of buildings, roads or infrastructure, the cranes involved might just belong to TH.