As the construction industry recovers from the effects of Covid-19, Hong Leong Asia (HLA) said it expects continued growth in its building materials business especially as the Singapore Housing Board (HDB) increases public housing supply to meet home demand.

HLA Chief Executive Officer Mr Stephen Ho explained how this is a timely move for the industrial conglomerate at the company’s earnings briefing on 11 August 2022. This article was first published in the 13 August 2022 issue of The Business Times.

In December last year, HDB announced that about 35 per cent more flats would be released in 2022 and 2023.

HLA Chief Executive Officer Mr Stephen Ho said HLA is well-placed to take advantage of an increase in demand for locally precast building materials, with its newly built Integrated Construction and Prefabrication Hub that will be ready in the fourth quarter of this year.

As Malaysia went into lockdown during the Covid-19 pandemic, precast parts could not be delivered on time. This has led to developers asking that 50 per cent of precast parts be manufactured locally. "That's where we have a distinct advantage, because not many pre-casters have this additional capacity like we do, so we are in a sweet spot," Ho said, adding that the company continues to pursue contracts at higher prices as costs are higher in Singapore than they are in Malaysia.

The company has an order book that should last about 16 to 17 months. While more migrant workers have returned to the construction workforce, Ho noted that some manpower challenges remain.

Anecdotally, HLA has found that experienced workers who have returned home during the pandemic are less productive than their counterparts who stayed. New workers will also need to be trained for about 2 to 3 months before they are up to speed. Furthermore, dengue outbreaks have also disrupted work at construction sites.

Ho said the company will still need to deliver on such projects and that only the recognition of the revenue is delayed in such cases. "What we tried to do is to rely less on foreign workers and more on automation in our precast manufacturing hub," he noted.

Within the building materials unit, Hong Leong Asia's ready-mix concrete segment has also limited option but to pass on higher input costs to its customers, although this remains a delicate balance.

"It's more an art than a science...a lot of it really depends on your capacity, your ability to absorb the costs and how much margin you think you can get out of it," Ho said.

As for the diesel engine segment, revenue declined 30.9 per cent to S$1.8 billion. The group attributed this to renewed Covid-related lockdowns in cities across China, which hurt commercial vehicle demand.

Notably, Ho said there was significant inventory overhang as the market had built up stocks of engines that met the older China V standards before the China VI standards came into force in July last year. He added that he does not see the situation improving until the fourth quarter of this year.

Ho also said that while the margins of the diesel engine business remain depressed, increased order volumes for the newer engines would give the company more bargaining power with suppliers for greater volume discounts.