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28-12-2010, 02:08 PM
Nice explanations 
A simple way to valuate a construction company is to calculate the projected NAV. I think the method is similar to valuating a property developer.
For a pure construction contract, I think the after tax profit margin is around 5-10% of the contract value.
Assuming 7% profit margin, a construction company with a $1 billion contract order will be expected to earn around $70 million if they fulfill the contract order.
By taking account of the current NAV and the projected earning for the next few years, the investor should be able to derive a projected NAV for valuation.
Take Tiong Seng as an example, the current NAV is around 22cts and it has a $1 billion contract orders on hand.
Assuming 7% profit margin, the expected future profit will be around S$70 million or 9.1cts per share.
Therefore, the projected NAV is around 31cts.
The current share price is around 25cts and looking at it, there isn't much margin of safety.
A simple way to valuate a construction company is to calculate the projected NAV. I think the method is similar to valuating a property developer.
For a pure construction contract, I think the after tax profit margin is around 5-10% of the contract value.
Assuming 7% profit margin, a construction company with a $1 billion contract order will be expected to earn around $70 million if they fulfill the contract order.
By taking account of the current NAV and the projected earning for the next few years, the investor should be able to derive a projected NAV for valuation.
Take Tiong Seng as an example, the current NAV is around 22cts and it has a $1 billion contract orders on hand.
Assuming 7% profit margin, the expected future profit will be around S$70 million or 9.1cts per share.
Therefore, the projected NAV is around 31cts.
The current share price is around 25cts and looking at it, there isn't much margin of safety.