Singapore’s construction spending is forecast to hit $55 billion by 2011

Singapore’s construction spending is forecast to hit $55 billion by 2011, buoyed by contracts to be awarded for the integrated resorts (IRs), and petrochemical plants at Jurong Island, Goldman Sachs said in a report yesterday.

Total contracts awarded this year should come in at the high end of a $17-$19 billion range forecast by the Building and Construction Authority, indicating a 20 per cent jump this year from $16.1 billion in 2006, said the investment bank.

Goldman Sachs added that construction orders are set to reach a high by mid-2008, surpassing the previous cyclical peak of $23 billion in 1997.

‘The construction sector is on a full swing to recovery and we expect a multi-year acceleration in activities,’ said Goldman Sachs analysts Chee Yoke Fong and Rick Loo.

Developers of the two integrated resorts at Marina Bay and Sentosa - which will cost a total of $10.25 billion to build - are set to award contracts over the next three to six months, along with the developer of a new sports facility.

The Sports Hub is due for completion in 2011, at a cost estimated at between $650 million and $800 million.

ExxonMobil, the world’s largest oil company, may also award construction orders for a US$4 billion petrochemical complex at Jurong Island, known as the Singapore Parallel Train project.

While Exxon will only finalise its plans for the plant in about a month’s time, Goldman Sachs said ‘preparation works may have started in anticipation of construction commencing in mid-2008′. Another petrochemicals company, Shell, started construction of a US$3 billion project on Jurong Island in March. Goldman Sachs expects building activities to peak in 2008-09.

The hot property market is likely to churn out more contracts for residential developments as well, while the new Marina Bay Financial Centre should bring in more building orders, Goldman Sachs said.

The US investment bank’s customised basket of construction-related stocks has risen 41 per cent since it was introduced at the end of March, and Goldman expects further upside with the construction boom.

Goldman named crane rental company Tat Hong Holdings and structural steelworks company Yongnam Holdings in the same report, saying both subcontractors hold higher pricing power due to their niche market positions.

‘They (Tat Hong and Yongnam) will emerge as front runners among their peers, and enjoy higher margins in the current environment of buoyant demand and tight capacity,’ said the analysts.

Tat Hong is currently supplying more than 30 cranes to the Marina Bay casino project and could rent out more, given that it is possible that up to 80 cranes would be needed for both casinos during peak periods, the analysts said.

Meanwhile, Yongnam, a bidder for the Marina Bay casino project, expects the first set of structural steelworks contracts to be announced in August.

Goldman Sachs had a ‘buy’ rating for both stocks, with a 12-month price target of $2.21 for Tat Hong, and a price target of $0.46 for Yongnam.

At the end of yesterday’s trading, Tat Hong shares closed 1.4 per cent higher at $2.20, while Yongnam’s rose 1.2 per cent to finish at $0.425.

Source: The Business Times, 22 June 2007