Soilbuild Construction - Strong order wins driving earnings turnaround

Soilbuild Construction (SGX: S7P) - A leading construction player in Singapore

Soilbuild Construction Group (Soilbuild) has multi-disciplinary capabilities in the construction industry grouped under its two core business divisions of Construction and Precast & Prefabrication. 

With more than 200 properties completed since 1976, Soilbuild offers a full spectrum of real estate construction services primarily in its home market of Singapore, which represented 98% of group revenues in 2023.

Building on its multi-category presence with sustainability credentials

Soilbuild believes that its competitive strengths lie in its multi-category presence in the construction industry, having the capabilities to execute residential and business space properties across public and private construction projects and its strong track record and relationship network in Singapore. 

The group has also embarked on green building initiatives since 2008, and is well positioned as a sustainable builder given up to five percent of evaluation points for tenders in Singapore awill be allocated to sustainability-related considerations from 2024.

Healthy construction demand in Singapore of S$31-38bn p.a. from 2025-28

The Building and Construction Authority (BCA) of Singapore projects the total construction demand to range between S$32-38 bn in 2024, with a steady improvement in construction demand over the medium term, reaching between S$31-38 bn from 2025 to 2028. 

With enhancements to the Quality Fee Method Framework, a greater emphasis on quality over price would support established contractors such as Soilbuild, with the BCA expected to further explore how to encourage sustainable bidding behaviour by disqualifying unsustainably low fee bids and reduce the score for bids that are substantially lower than other tenderers in public sector projects.

An earnings turnaround since 2023 after six consecutive years of losses 

Soilbuild reported six consecutive years of losses from 2017 to 2022, with the sizable losses in recent years driven by construction projects which were priced and entered into prior to the Covid-19 pandemic. 

With the rising cost environment arising from higher manpower and material costs and its subcontractors repricing its prior contracts, yet with Soilbuild  honouring its commitments to clients, overall margins were impacted. 

These projects have since been substantially completed, and Soilbuild has returned to profitability since 1H23. 

Most recently, Soilbuild saw net profits up more than 5x YoY to S$7.4 mn in 1H24, with rising earnings momentum driven by both strong revenue growth and higher gross margins. Improved operating cash flows also led to a deleveraging of the group, with net gearing down from 1.7x as at December 2023 to 1.2x as at June 2024.

S$1.25 bn orderbook with strong order-win momentum YTD

As at 19 August 2024, Soildbuild has built up a healthy order book of S$1.25 bn, more than 5x its full year revenues in 2023 and supporting revenue visibility over the next few years. 

This was driven by strong order-win momentum by the group, particularly with a S$647.5 mn construction contract at Tuas Port in June 2024 that is the largest project won by the group in its history.

Key risks

Earnings are susceptible to the cyclical nature of the construction industry, particularly in its key market of Singapore. 

Government regulations and policies surrounding the employment of workers and building works and license requirements could also impact construction players such as Soilbuild.

Trading at annualised P/E of 7.9x

Soilbuild trades at 8.8x P/E, below its peer-average of 12.1x for Singapore construction-focused companies listed on the SGX, despite its superior ROE profile of 29.4%. 

Based on annualised 1H24 earnings per share, Soildbuild trades at a more attractive P/E of 7.9x. Key catalysts to lookout for include further new order wins and its next full year earnings announcement.

Download the full report here.

To learn more about Soilbuild Construction, read our interview with the CEO of Soilbuild Construction here. 

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