Case Study: Is Singapore’s Construction Industry in Trouble? (Part 1)

Singapore’s construction industry is having a bad quarter. News of financial difficulties were coming out from a few public listed construction companies. The pandemic and the rise in cost due to inflationary pressures have caused many to suffer. Revenue and profit from construction companies are usually project/contract based. It means that any sudden surge in construction cost will have a negative impact on their budgeted costs as it is not easy to pass the cost onto the customer. Therefore, contractors and developers were the worse hit in this sector. This has led me to think whether Singapore’s Construction Industry is in trouble.

Trouble is Brewing

Several construction companies have made announcements about their subsidiaries that are facing financial difficulties. Here is what I’ve found out so far.

1. Tiong Aik

Tiong Aik Construction, a subsidiary of SGX listed TA Corp (SGX:PA3), was placed under voluntary liquidation due to its inability to pay off debts. This was reported in the newspaper Straits Times so readers can click on the link to find out more.

In related news, King Wan Corp Ltd (SGX:554) reported that the lack of payment from TA Corp will have a negative impact on its earnings as they have to do impairment on the monies owed to them by Tiong Aik.

2. Logistics Construction Pte Ltd

Logistics is a subsidiary of Boldtek (SGX:5VI), but they are currently suspended from trading. Trading in the shares of the Company has been halted since 12 January 2023 and subsequently suspended since 16 January 2023

From their recent announcements, Logistics received claims from debtors amounting to $7.0mil.

In latest news, Boldtek was granted moratorium under Section 64 of the Insolvency Restructuring
and Dissolution Act 2018.

3. Hansin Timber Specialist

Under Keong Hong Holdings (SGX:5TT), Hansin was placed under into creditors’ voluntary liquidation due to its cash flow problems and its inability to pay its debts as and when they fall due.

Another thing to take note is that Keong Hong have given notice of consecutive 3 years of losses. However, I think they still have a fighting chance to turn things around. Their current ratio is still positive, with around $100mil in cash, cash equivalents and financial assets.

4. Double Trans Pte Ltd and Samco Civil Engineering

Both companies were subsidiaries of HKEX listed Shuang Yun Holdings Ltd (HKEX:1706).

The string of bad news began in 14 Jul 2023 when they announced the following:

The Board of Directors (the “Board”) of the Company wishes to announce that amidst an
environment of rising costs and increasing uncertainty in the economy, and received demand notices from banks, the Group is conducting a review of its business, overall financial position and commitments with the objective of deciding on and implementing strategies and plans to address potential business and/or investors and financial challenges moving forward. The Company has engaged professional advisors as part of this exercise.

Shuang Yun Holdings Limited
Tan Chai Ling (alias Chen Zhilong)

In the following days, Shuang Yun Holdings received both letter of demand and statutory demands from various banks and creditors. You may refer to the table below which I tabulated based on the announcements (disclaimer: info/amount may be wrong depending on how I interpreted the announcements)

This came as a surprise as most would have seen either Double Trans or Samco machineries on the roads. They were one of the largest road maintenance company in Singapore.

Another reason that this came unexpectedly is because just 6 months ago, they reported a profitable FY22 ending Dec 2022 and is net asset positive.

Upon looking at the annual results closer, there were 2 details that were huge red flags for me.

1-No Cash Flow Statement

Need I elaborate more? I read the report over and over again and could not find the cash flow statement.

2-Huge Trade Receivables

Never mind the low cash on hand compared to assets, they have a huge huge trade receivables making up their current assets. Let me explain why this is a huge red flag.

$94m out of their current assets of $131m is trade receivables (70%), whereas cash is only about $2m. This means they will face cash flow problems if their debtors fail to make payments on time. What is even alarming is that out of the $94m trade receivables, $87m is classified as unbilled revenue. Unbilled revenue refers to revenue taken into account but has not been billed to the customer. It really depends on how their contract terms are stated out but $87m is a tad too much. Their annual revenue is only $98m, does that mean that they have a year’s worth of work done that is not claimed? This also brings me to a concern whether these work done are even claimable to the customer.

Looking back at their annual results for the past year, this unbilled revenue only keeps getting larger. Not really knowing the whole story, I cannot really conclude what is actually happening in their maintenance contracts but this is a concern if I was an investor.

5. CKR Contract Services Pte Ltd

This is not a public listed company but is one of the major concerns related to our public housing. Of course, this is not the first BTO flats contractor who had been terminated, with Greatearth being terminated due to financial difficulties in 2021.

For CKR’s case, the reason given was unsatisfactorily performance and repeated delays in their project. It was not reported if their case was due to financial difficulties. But this was a project that was awarded just before Covid-19 hit. I would assume that they were badly affected in the disruptions and increased costs that resulted from Covid and inflation that followed soon after.

I opined that BTO contractors awarded projects during this period will be hit the hardest due to the unforseen increase in cost. With the last batch of BTO flats that were affected by Covid to be launched by next year, this is the final hurdle that these contractors have to clear. I wish them the all the best and hope that their nightmare will be over upon completion and handover of these flats.

Conclude Part 1

This concludes Part 1 where I discussed the troubles that were brewing in Singapore’s construction industry. The recent bad news coming out has put a negative outlook on this sector. Banks/ financial institutions may be more cautious in construction project financing and this may cause things to deteriorate.

However, all is not lost as there are also companies that were performing well in this period. I will be covering these companies in Part 2.

I will touch on the 1 contractor that I’m rooting for to succeed and do well in the next few years. This company had faced many difficulties for the past few years (even before Covid). Now I feel that they are positioned well to take advantage of the construction demand.

Cheers and enjoy the rest of your weekend.

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