Pretty, Chic and Rich

CIMB PM
North South Expressway gets green light, Singapore contractors to benefitYesterday, the Land Transport Authority (LTA) gave approval for the alignment of the North-South Expressway (NSE) between Admiralty Road West and Toa Payoh Rise. When completed, the NSE will be Singapore's 11th expressway, and will run parallel to the Central Expressway (CTE). Among SGX-listed construction stocks under our coverage, we believe that OKP and Yongnam have the most direct exposure to NSE.Road works underway for the next 10years: The 5km Marina Coastal Expressway (MCE) is currently under construction, and is expected to be completed by 2013. Meanwhile, construction of the proposed 16km NSE is expected to commence from 2013 and finish by 2020. Given the scale (3x longer than MCE measured by length) and complication (described by LTA as “one of the most challenging engineering undertakings to date”) of the NSE, we expect bigger and potentially more lucrative contracts to be awarded to contractors.OKP (BUY; TP: S$0.85): OKP is involved in the construction and maintenance of urban and arterial roads, expressways, vehicular bridges, flyovers etc. The company is also likely to benefit from road construction contracts awarded for the NSE project. We like OKP for its high projects visibility in the public sector, and its strong potential overseas expansion story. OKP is also a prime candidate to benefit from governments’ infrastructural spending.Yongnam (Outperform; TP S$0.41): As a leading provider of specialist civil engineering (SCE) solutions in Singapore, we believe that Yongnam is well-positioned to secure specialist civil engineering contracts for the NSE project. The Group won six MCE contracts worth S$363m in aggregate between 2009 and 2010. Given that the NSE is a much bigger project compared to the MCE, we expect its total contract wins for the NSE to surpass its MCE contract wins. Its order book stands at S$451xm as at 30 Sep 2010, with the record high of S$540m registered on 30 Sep 2009. We expect the specialist civil engineering contracts for the NSE to be awarded from 4Q2012.