S’pore government bringing back deferred projects. We predicted in our Nov 08 report that the government would be releasing some of the S$4.7b deferred projects in an effort to stimulate the economy. True to our expectations, Minister for National Development Mah Bow Tan said that the government would be bringing back some of the smaller projects, of up to S$50m in value. In addition, the government would be bringing forward other suitable new projects in the pipeline, on top of the projects originally planned for 2009. Details would be announced during the 2009 Budget Statement.

BBR is expected to benefit from this as it’s exposure to the public sector is approximately 76% (based on 11 Nov 08’s order books). Given BBR’s strong track record in government infrastructure projects, it has a good chance at securing some of those projects that are rolled out, thereby beefing up its order books.
Credit assistance measures in place. Financial institutions these days are more prudent in lending and are looking to reduce loan amounts to companies or increase collaterals. To ease the credit squeeze that companies are facing, Spring Singapore has enhanced its business credit assistance schemes during this period. The assistance rendered include extending the qualifying criteria to allow more construction firms to tap on such schemes and lowering the interest rates for bridging loans to reduce the cost of credit to companies.

In our opinion, these measures by the government act as a safety net for the smaller construction firms which are likely to be experiencing significantly higher cost of borrowings or even having difficulties obtaining funding for their working capital and asset enhancement needs. Indirectly, BBR may benefit as it sub- contracts out certain works to other contractors. Should these sub-contractors fold due to difficulties in securing working capital or cashflow issues, there is a possibility that those BBR’s projects’ completion may be delayed or have their margins eroded when hiring another sub-contractor on an urgent basis.

Public sector agencies to make payments promptly. Mr. Mah has also said that public sector agencies would be making more frequent, prompt and full progress payments to firms for completed and certified construction work done. We believe this would help in companies’ cashflow management.

Lowering security deposits. The public sector agencies would also be lowering the quanta of security deposits required for their construction projects. The current 5% deposit would be reduced to a range of between 0% to 2.5%, where possible. This would help in freeing up cash for companies, enabling the cash previously tied up in deposits to be utilised in other operating activities. Less rosy macro economic conditions in 2009. According to Mr. Mah, the total value of contracts awarded in 2008 was S$34.6b. BCA’s projection for value of contracts awarded in 2009 is between S$22b and $28b, or -19.1% to - 36.4% YoY. In view of a more muted macro economic environment, we are maintaining our NEUTRAL stance and fair value of S$0.045 for BBR, based on 3x forward earnings.