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Is This a Possible Game-Changing Contract Win for BBR Holdings?

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The local construction sector has been fraught with many challenges of late. Chief amongst those would be rising labour costs. However, a new technology may just set things right in the future.

Construction and property development outfit BBR Holdings (SGX: KJ5)  will be constructing Singapore’s first public high-rise development that deploys the Pre-fabricated Pre-finished Volumetric Modular Construction (PPVC) technology. The contract, which is worth S$196 million, involves the construction of a new hall of residence for Nanyang Technological University.

According to BBR, this is what PPVC is all about:

“[It is a] light-weight steel modular system where room-sized units complete with internal finishes, fixtures and fittings are pre-fabricated in factories, and are then transported to construction sites for installation and assembly to form modular apartments”.

The project will consist of six blocks of student hostels. In turn, each hostel would be 13-storeys tall and comprise of 1,582 rooms and a full range of recreational facilities that can cater to over 1,800 students. The project is slated to be completed within 19 months.

BBR Holdings’ Chief Executive Officer, Mr Andrew Tan, commented on the current state of the construction industry and how PPVC might help alleviate some of the company’s operational pressures:

The Singapore construction and building industry is at a crossroad whereby it is challenged by the tight labour market and increased foreign worker levies while facing strong growth momentum. Deploying the PPVC system will catapult us ahead to the next lap in terms of the breakthrough in labour productivity and operational efficiency.

We can expect up to 40% increase in labour productivity and 15% reduction in terms of the construction timeframe required for the North Hill Student Hostel development as compared to conventional methods of construction. The PPVC system fits within the construction industry’s initiative to promote green sustainability in the built environment as well as greater environmental awareness in Singapore.”

Besides an increase in overall efficiency, the PPVC technology can also bring about other benefits such as:

1. Improved quality control (time savings from defect works and higher satisfaction among the developer and end-users)

2. Improvement in safety and working environment for the construction team.

3. Reduction in dust and noise pollution as construction activities are performed substantially off the construction site

All pre-fabrication works for the PPVC system will be carried out locally by another publicly-listed company, Swee Hong (SGX: QF6). Swee Hong has said that it is in the process of finalising the contract with BBR Holdings in relation to the new NTU hostel and once everything’s ironed out and pen has been put to paper, the company would be making the appropriate announcements.

This new contract win will see BBR’s order book zoom past the S$1 billion mark. Its order book stood at S$820 million as of 31 March 2014.

BBR shares are now trading at S$0.28, valuing the firm at a historical PE (price/earnings) ratio of only 4. Its dividend yield stands at 3%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.