As Construction Boom Lengthens, target PE multiples have room to expand. CGS makes the case for this

THE CONTEXT

• The Singapore construction sector is entering a multi-year "extended upcycle," with earnings now projected by CGS International to peak as late as FY28F/FY29F.

In a new note, CGS estimates that if it adjusted target PE multiples to reflect where a company thrives in the cycle, it offers significantly higher upside potential for the stocks.

• CGS says its current target prices are conservative ones generally pegged to the historical average P/E multiples of the companies.

• It, however, argues that as the construction upcycle extends toward an earnings peak, the market will re-rate stocks to higher multiples (+0.5 to +2.0 standard deviations above their historical averages).

In that scenario, the upside is as follows:

Construction upsideCGS1.26 The full CGS table is here.

• The analysis distinguishes between companies based on their role in the construction timeline:

» Early-cycle players (Building Materials): Names like BRC Asia and Pan-United are evaluated at +0.5 standard deviation (s.d.) above their historical P/Es.

» Late-cycle beneficiaries (M&E and Fit-out): Companies such as Ever Glory United, ISOTeam, and Lum Chang Creations are pegged to +1 s.d. of their FY27F P/Es.

Read more below ...

Excerpts from CGS International report
Analysts: Natalie Ong & Then Wan Lin

Extended upcycle supports further re-rating

■ BCA has raised its 2026F construction demand forecast, supporting our view of an extended upcycle and earnings peaking later in FY28F/29F.

■ There could be 1-24% upside to our TPs. Our TPs are conservative, with implied FY27F P/Es only at their respective historical averages.

■ Maintain Overweight on the construction sector. We expect names under our coverage to deliver FY26F-28F EPS growth of 16-41% and ROE of 16-24%.

■ Top picks: SANLI, SOIL, TWC, with 28-32% upside to our respective TPs.

Earnings growth extended, to peak in FY28F/298F

We now believe EPS growth will continue into FY29F and earnings will peak in FY28F/FY29F (previously FY27F/FY28F).

We see 1-24% potential upside to our TPs, which are conservative with implied FY27F P/Es (for 7 out of 9 names under our coverage) only at their respective historical averages.

Our scenario analysis, which pegs our hypothetical TPs to the respective stage-of-cycle multiples, posits potential 21-154% upside to our cycle-adjusted hypothetical TP; early-cycle players like building material names BRC, and PAN are pegged to +0.5 s.d. of their historical P/Es while late-cycle beneficiaries like mechanical and electrical (M&E) engineering, design and fit-out players (with later earning peaks) are pegged to +1 s.d. of their FY27F P/Es.

Maintain sector Overweight; SANLI, SOIL, TWC are our top picks

We maintain our Overweight call on this sector, expecting names under our coverage to deliver FY26F-28F EPS growth of 16-41% and ROE of 16-24%; we now expect the Singapore construction upcycle to extend into FY29F.

NatalieOng 7.25

Natalie Ong, analystOur top picks are SANLI, SOIL and TWC; despite 28-32% upside to our respective TPs, implied FY27F P/Es are undemanding at their average historical forward multiples (10-15x).

Re-rating catalysts: strong offtake volumes and earnings-accretive M&As.

Downside risks: project delays due to bottlenecks in other construction services and work stoppages.

→ See the CGS report here
→ See also: Margin Recovery, Multi-Year Backlogs for Construction Companies. Which are UOB KH's picks?