July 26 (Bloomberg) -- Southeast Asian cement stocks are the cheapest bet on the region's first building boom in a decade after trailing property and building shares in the past six months.

Shares of the three biggest cement makers in Malaysia, Singapore, Thailand, Indonesia and the Philippines are about a third less expensive than those of developers. The average price-earnings ratio for the 15 stocks is almost half that of construction companies.

Cement stocks ``look interesting as they're still cheap, especially compared to some property developers,'' said Mark Tan, who helps manage about $3 billion at UOB Asset Management in Singapore. ``We're only at the initial stages of the building cycle. A lot of investment has been pushed back for too long.''

He owns shares of Hong Leong Asia Ltd., the biggest supplier of cement in Singapore, and said he's been adding shares of other building material companies, declining to name them.

Faster economic growth and lower borrowing costs are spurring increased construction spending and higher selling prices for the building material. At the same time, real-estate developers are facing higher costs and government efforts to damp speculation.

The cement makers are valued at an average of 21 times reported profits, while the 15 largest property companies are trading at about 27 times, data compiled by Bloomberg show. An index of the cement stocks has risen 35 percent in the past six months, trailing the 52 percent gain for property shares.

The three biggest construction companies in each country are trading at an average of 37 times earnings after surging 60 percent in the same period.

`Not Expensive'

``Shares of cement makers are not expensive'' given their earnings prospects, said Christopher Wong, who helps manage about $25 billion at Aberdeen Asset Management in Singapore and owns shares of Bangkok-based Siam Cement Pcl. ``They're long- term holds for us.''

The Association of Southeast Asian Nations, a group of 10 countries, is in talks to start a $500 million infrastructure fund to help kick-start the building of roads and other regional projects, Secretary General Ong Keng Yong said on June 25.

``We're seeing the first real construction cycle in this region since the Asian Financial Crisis,'' said Christopher Wood at CLSA Ltd. in Hong Kong, who was voted top Asia equity strategist in Institutional Investor's latest poll. ``I would be very happy just owning a basket of cement stocks in the region with the amount of infrastructure spending in Southeast Asia.''

Casinos, Roads

In Singapore, the building of two casino resorts and a surge in home prices are helping spur the fastest construction rate in a decade. The industry grew 17.9 percent in the second quarter, helping the economy expand an annualized 12.8 percent.

Malaysia is spending 200 billion ringgit ($59 billion) on a five-year plan to build ports, bridges, airports and roads.

Indonesia is constructing a 116-kilometer (72 miles) toll- road linking Cikampek and Palimanan in West Java, the longest since the financial crisis of 1997. The project alone may add about 600,000 tons in cement demand, equivalent to 2 percent of expected national demand in 2007, Ahmad Solihin, an analyst at PT Bank Mandiri in Jakarta, wrote in a report last week.

To spur investment and encourage lending, Bank Indonesia has cut the rate used as a reference for bill sales six times this year to the lowest since the measure was introduced in July 2005. The Bank of Thailand last week trimmed borrowing costs for the fifth time this year, while the Philippine central bank lowered its key interest rate for the first time since July 2003.

Rising Prices

Selling prices for cement are set to rise, providing a further boost to companies like Lafarge Malayan Cement Bhd., Malaysia's biggest producer by market value, and PT Semen Gresik, Indonesia's largest.

Shares of Lafarge, based in Petaling Jaya, have jumped 30 percent this year. Semen Gresik, based in Gresik, East Java, has surged 50 percent.

Malaysia's government lifted a cap on the price of the building material on June 19 and said prices will be fixed automatically every four months starting Jan. 1. They had climbed just twice in the past 12 years. Prices in Indonesia have increased as much as 11 percent in the past three months as demand recovered, according to a July 17 estimate by Credit Suisse Group.

``Rising cement prices will have a positive impact on these companies' bottom lines,'' said Foong Choong Chen, a Kuala Lumpur-based analyst at UOB-Kay Hian Pte. ``Almost all will benefit from the rising demand in cement.''

`Squeezed'

Leslie Phang at Commonwealth Private Bank in Singapore isn't convinced cement stocks are the safest way to invest in the building boom, questioning whether cement prices will be able to keep pace with rising raw material costs.

Cement makers use materials such as limestone, sand and iron ore, while higher coal and oil prices lift electricity costs.

``Raw material prices are going up and it's a question of how much longer they can keep their costs down,'' said Phang, who helps manage $1 billion and is avoiding cement shares. ``Real estate companies should naturally command a premium over building materials suppliers, which get squeezed on margins.''

Even so, prospects for weaker real-estate returns may help cement stocks outperform property shares.

Singapore last week raised a property redevelopment charge, fueling speculation the government will take more steps to tackle soaring rents and home prices. Private-home prices in the city-state rose at their fastest pace in almost eight years in the second quarter, government data show.

`Wait-and-See'

``The market is now anticipating further measures to address the issue of speculation,'' Jit Soon Lim, an analyst at Citigroup Inc. in Singapore, wrote in a July 23 note. He cut his rating on Singapore's property stocks to ``neutral'' from ``overweight.''

Cement makers are likely to be beneficiaries of Asia's expansion, said Nicole Sze, a Singapore-based analyst at Bank Julius Baer & Co., which manages $350 billion worldwide.

Gross domestic product in Singapore may expand by as much as 7 percent this year, while governments in Malaysia, Indonesia and the Philippines are forecasting growth of about 6 percent.

``After the strong rally in property stocks, we're taking a `wait-and-see' stand right now, whereas some of the smaller cement companies in this market have yet to see a rally,'' Sze said.

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net

Last Updated: July 25, 2007 13:03 EDT