A reader asked SPK this question – “You have recommended Sing Holdings. But what about Wee Hur Holdings Ltd? Wee Hur is also the developer (partner with Sing Holdings) and main contractor of Parc Botannia.”
A very valid question. Let SPK answer this question below:
1. The impact of Parc Botannia’s profit to Wee Hur will not be as significant as it will be to Sing Holdings
Wee Hur is also a SGX-listed company and it is also a partner (together with Sing Holdings) in the development of Parc Botannia. However, Wee Hur holds only a minority stake of 30% in the project. Based on SPK’s estimates in the earlier post, Wee Hur’s share of profit from Parc Botannia would work out to be around S$44 mil to S$52 mil.
But let’s not forget that Wee Hur is also the main contractor for Parc Botannia. Assuming that the construction contract is valued at S$155 mil and Wee Hur makes a profit margin of 13% (base on its past construction margin) from the contract, then Wee Hur would probably make an additional profit of S$20 mil from the construction job. Hence, total profit that Wee Hur could potentially derive from Parc Botannia is estimated to be around S$64 mil to S$72 mil.
Looks decent, isn’t it? But if we compare this potential profit against Wee Hur’s current book value of S$345 mil, this potential profit from Parc Botannia can only lift Wee Hur’s book value by 19%~21%, to S$409 mil~S$417mil.
In contrast, the impact of Sing Holdings’ potential profit (from Parc Botannia) to its book value is more significant. We have mentioned previously that Sing Holdings book value could potentially jump 40% to 47% because of Parc Botannia. This is also due to Sing Holdings’ smaller book value base as compared to Wee Hur.
2. Wee Hur’s core business is in the risky construction business
Wee Hur’s construction arm contributed the bulk of the company’s revenue and profit in the last financial year. SPK is not an expert in construction but based on reports and observations, the construction industry has already become a cut-throat business, with the entry of low-cost China construction companies. In addition, exposure to raw material price fluctuation could add another layer of risk to the construction companies. With their thin margins, there is little buffer or room for error and an increase in costs could result in losses to the construction company.
Recently, news reports also mentioned that the construction sector continued to be hard-hit by sluggish demand and delayed payments, with little relief in sight.
Considering the lack of upside and yet the higher risk involved in Wee Hur’s business, it would seem that Sing Holdings might be a better choice to invest in, isn’t it?
The information and opinion contained in this blog posting above is based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.