CSC Holdings: Solid Foundation

CSC Holdings, Singapore’s largest piling contractor, have seen better days. Its order book currently stands at S$110m, which appears to be anaemic compared to a record S$448m during the mega infrastructure boom in 2007. But things seem to be turning around, as the taps for government contracts are being turned on. We estimate orders to more than double by FY11, which should set the stage for a re-rating of the stock. Moreover, its valuation, at 9.1x FY10 P/E, is attractive compared to its historical average of 16.6x. Initiate with BUY.

Major contracts in the offing. We expect CSC to bag some S$213.5m in piling contracts for at least three major projects, namely the MRT Downtown Line II, Marina Coastal Expressway and the Singapore Sports Hub by FY11. In addition to the public projects, there are many residential projects slated to be offered in the coming two years, a result of a massive number of en-bloc sales done in 2007. Many projects were delayed in 2008 due to the tepid economy, but the recent buying frenzy has prompted developers to launch their projects, opening up opportunities for CSC.

High probability of project wins due to size, expertise. We believe that CSC has a better shot at winning the bids, given that it is the region’s largest foundation player with a fleet size that is twice that of its nearest competitor in Singapore. It is also the only domestic player to offer the complete range of piling solutions. These give it the advantage of being able to target projects that are more complex, which typically commands higher margins.

Initiate with a BUY. We believe that the inflow of the government’s mega projects would create an upswing in earnings momentum for CSC from 2010. Thus, we have ascribed a P/E of 12x FY11 earnings, the level it was trading at in 2005 just before its earnings recovery. This works out to a target price of S$0.29. Initiate coverage on CSC with a BUY rating.

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