Chart of the Day: Contractors' profit margins crumble amidst cost pressure

Here are 5 reasons why.

In a report, DBS retains its bullish view on Construction Resources and Equipment stocks as opposed to Contractors. Part of the compression in contractors’ profitability stems from rising material and resource costs including labour.

Here's more from DBS:

The key reasons are: 1) Contractors are facing a more challenging margin/profitability environment, which they need to navigate through;

2) Contractors can sometimes face negative growth because they take on projects with low profitability expectations;

3) Building Resource stocks are enjoying an uptick in resource pricing as demand for resources outstrips supply;

4) Building Resource stocks tend to have more resilient margins as they generally operate on a cost plus model; and

5) Building Resources stocks have the ability to supply to several contractors, exposing themselves to more project packages.

Our top picks in the Construction sector are Tat Hong and Pan United.

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