CSC Holdings – Singapore’s largest foundation engineering specialist

Listed since 1998, the Group operates principally as a specialist for foundation and geotechnical engineering works. CSC is the only player in Singapore to offer a complete range of piling solutions and is more than twice the size of its nearest competitor. The Group serves both the private and public sectors and is listed by the Building and Construction Authority (BCA) of Singapore (Category L6) to tender for projects with no limit on value.

With its focus on geotechnical and foundation works, CSC operates primarily as a sub-contractor in this respect to other main contractors. In a typical construction project, the Group is involved only in the first phase which typically takes around 3-6 months. The risk of default or project delays are lower for CSC as they are the first to receive payment for projects and are protected from subsequent variables which may affect the construction projects.

We believe CSC’s niche market is less competitive than that for main-contractors, where intense bidding can hurt profitability. Main-contractors also have to contend with foreign competitors who may engage in cut-throat pricing to win projects for strategic purposes. During project bidding, it is not unusual for several main-contractors to line up CSC as the foundation sub-contractor, ensuring work no matter who wins the contract.

We note that even when the construction sector was in its doldrums in 2003-2005, CSC remained profitable and was able to achieve double-digit gross margins. While private construction projects have dried up recently, management is optimistic the government’s plannedexpenditure on public sector infrastructure projects will provide a cushion. Admitting that FY08- FY09 were exceptionally profitable years partly due to the IR projects, management is aiming for more sustainable revenue at a lower base of $300m-$350m going forward.

To achieve sustainable revenue, the Group has invested in capital equipments over the last few years and is now in a strong position than before. Overseas efforts to increase its presence in countries such as Malaysia and Vietnam aim to diversify its revenue sources. The Group currently has an orderbook of $110m, as compared to approximately $200m at the same time last year. CSC is currently trading at 1.3X P/B. It also announced total dividends of 0.6cents for FY09.

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