Construction & Materials
The Big 5
We believe the dredging industry's strong recovery since 2004 has (temporarily)
come to an end. Land reclamations in the Middle East have been scaled down as
a result of the credit crisis, reducing global utilisation rates. Also, we believe the
strong development of CCCC will spur demand/supply imbalances.
Table 1 : Recommendations
Company Rating Target Price Potential Upside
Boskalis Hold 14 -7%
CFE Hold (from Buy) 24 3%
Ackermans & Van Haaren Buy (from Hold) 40 18%
BAM Buy 7.5 10%
Source: ABN AMRO forecasts
Demand: Credit crisis pushes utilisation rates down
The Middle East has driven about 61% of the dredging boom since 2004. Dubai’s land
reclamation projects required a significant amount of global capacity, which increased global
utilisation rates and margins. The success of the Palm Jumeirah in 2001 triggered more real
estate projects. The sky was the limit for the Big 4 and their average 2004-08F sales CAGR
was 23%. However, we have recently seen real estate developer Nakheel face serious
financing problems, putting on hold the land reclamation at Waterfront, Port Rashid and at
Palm Deira. We lower our demand forecasts for the industry significantly.
Supply: CCCC contributes to overcapacity in Big 4’s backyard
We have been concerned about oversupply since the beginning of 2008, as the Big 4 have
been on a capex spree. We now increasingly see oversupply coming from CCCC (previously
CHEC). CCCC focused on the domestic market in the past, but, since 2007, it has been
tendering for projects in the international open market. We did extensive research on
CCCC’s non-domestic projects and capacity, and believe the company could become a
serious competitor. CCCC’s capacity already exceeds that of the Benelux players and its
capacity expansion plans are even more aggressive. Given that CCCC’s expertise will only
improve and the Chinese domestic market is slowing down, we see CCCC as a true
alternative in the open market, unbalancing demand/supply even more.
We see significant earnings risk in the dredging industry
We argue that the gap between demand and supply for dredging capacity is widening and
creating significant earnings downside in the sector. We see EBIT margins in 2011 falling
below previous troughs given the overcapacity, price pressure and higher depreciation
charges as a result of fleet renewal.
Reiterate Hold on Boskalis, Downgrade CFE to Hold
Boskalis is the only listed dredger, while DEME is 50% owned by CFE and Ackermans & van
Haaren. Dutch construction company BAM owns 21.5% of Van Oord. We believe Boskalis is
fairly valued and we reiterate our Hold rating. DEME has a significant amount of debt on its
balance sheet. We downgrade our rating on CFE to Hold (from Buy). We upgrade AvH to
Buy (from Hold) on the back of non-dredging activities and reiterate our Buy on BAM.

Contents
Fuelling demand/supply imbalances 3
We have been bearish on the dredging sector since March 2008, but we
increasingly see earnings risk in the sector. We see a significant slowdown in
demand and looming overcapacity from CCCC. We reiterate our Hold on Boskalis,
but downgrade CFE to Hold.
3
Rollercoaster market 4
The dredging boom since 2004 was largely driven by land reclamation projects in
the Middle East. We see the largest client, Nakheel, facing financing problems that
could trigger overcapacity even sooner than we expected.
4
Company Dynamics 16
In this chapter, we provide small company profiles of nonlisted companies IHC
Merwede, Van Oord and Jan de Nul. We have included separate notes on Boskalis,
CFE and Ackermans & van Haaren later in this publication.
16
Jan de Nul 16
Van Oord 17
DEME 18
CCCC 20
IHC Merwede 21
Company profiles 22
Boskalis Westminster 22
CFE 40
Ackermans & van Haaren 44
BAM Groep 50
2