Lian Beng Group

OCBC on 12 Apr 2012

Lian Beng Group (LBG) reported that both its revenue and PATMI in 3QFY12 fell 27% YoY to S$96.0m and S$10.4m respectively. Despite its operating profit margin improving by 2ppt to 12%, LBG’s 3QFY12 PATMI fell in tandem with revenue due to lower one-off gains. The street, including ourselves, had previously not expected LBG’s execution of construction projects to slow. Consequently, we lowered our estimates of LBG’s FY12 revenue and PATMI by 16% and 10%. Though management remains cautiously optimistic of order flow in both public and private projects over the next 12 months, we reduce our fair value estimate of LBG to S$0.47/share, from S$0.51/share previously, but maintain our BUY rating.

Construction segment slows
Lian Beng Group (LBG) reported that both its revenue and PATMI in 3QFY12 fell 27% YoY to S$96.0m and S$10.4m respectively. Despite its operating profit margin improving by 2ppt to 12%, LBG’s 3QFY12 PATMI fell in tandem with revenue due to one-off gains falling to S$0.4m, compared to S$3.2m in 3QFY11. LBG’s construction segment remained its biggest revenue contributor even though its execution of construction projects slowed, causing a decline in the group’s revenue. At end-3QFY12, LBG’s order book slipped to S$742m, from S$772m at end-2QFY12.

FY12 estimates lowered
In 9MFY12, LBG’s revenue and PATMI totalled S$333.7m and S$40.6m respectively, meeting 62% and 76% of consensus full-year estimate. However, LBG’s 9MFY12 PATMI was boosted by an exceptional gain of S$7.9m from the sale of its investment property at New Industrial Road in 1QFY12. The street, including ourselves, had previously not expected LBG’s execution of construction projects to slow. Consequently, we lowered our estimates of LBG’s FY12 revenue and PATMI by 16% and 10% respectively to S$457.3m and S$53.1m.

Management stays cautiously optimistic
Management remains cautiously optimistic of the outlook for Singapore’s construction industry over the next 12 months and LBG will remain active in tendering for new projects. Management said continued interest in the mass market segment should sustain construction demand for the private housing market. On the other hand, construction demand for public housing projects, institutional buildings and civil engineering projects remain strong. Furthermore, LBG plans to list its ready-mixed concrete and engineering businesses in Taiwan so as to unlock shareholders' value.

Maintain BUY with lower fair value estimate of S$0.47
Despite lowering our revenue and PATMI estimates, we maintain our BUY rating on LBG but reduce its fair value estimate to S$0.47/share, from S$0.51/share previously, by pegging its EPS over the next four quarters to a P/E multiple of 5x.