Recent Budget 2009 has announced about S$6.4b of infrastructure expenditure. Mega spending of about 66% will go to LTA for on-going Circle Line, Downtown Line and road network expansion in Marina Coastal Expressway and widening of Central Expressway. Prior to the Budget 2009 in mid January, BCA announced that average annual construction demand for 2010 and 2011 to be around the range of S$20b to S$27b. Although private construction demand is deemed to grow slow, we expect total construction output beyond 2009 to be strongly visible from government's commitment.

Koh Brothers has been awarded the contract for Downtown Line 1 Bugis Station (DTL1) in December 2008. On top of that, Koh Brothers was also awarded the construction in Punggol Waterway and related engineering work in Jan 2009, bringing total order book to about S$690m as at end Jan 2009. We expect Koh Brothers to return higher top and bottom line in FY09E. Revenue in FY09E should increase circa 46.0% YoY to S$315.1m while Patmi to come in at S$10.8m.

We value Koh Brothers using sum-of-the-parts (SOTP) valuation due to the multiple business segments with each affected by different business fundamental and environment. Koh Brothers' Real Estate business continues to drag its overall valuation. We derive a SOTP fair value of S$0.215 and with a 30% discount due to trading illiquidity, we initiate BUY at target price of S$0.15.

Defaults from residential projects. Worse-than-expected occupancy rates of investment properties and hotel