Ley Choon Group

Kim Eng on 18 Sept 2012

Needs to catch up. Ley Choon, a builder of water and gas pipes, is a key player in Singapore’s infrastructure sector. With construction demand expected to slow in 2012, albeit with more resilience for the public sector, Ley Choon is emphasising higher margin products such as asphalt pre-mix to boost margins. A second asphalt plant in Singapore will be opened by early 2013. It is also trying to spread its wings overseas to Brunei and PRC. For now, its closest rival OKP Holdings have the edge in orderbook size, margins, balance sheet strength and valuations, but if Ley Choon succeeds in its margin enhancement initiatives and overseas ventures, it has a fair chance of catching up.

Benefiting from a resilient public sector despite overall slowdown. Although construction demand has slowed in 2012, the public sector which contributes 60% of demand is relatively resilient. Ley Choon, the result of a reverse takeover of Ultro Technologies in July 2012, gets 90% of its sales from public sector infrastructure contracts, and is wellpositioned to benefit from this resilience. Its latest orderbook stands at SGD146m, up 26% from end-2011.

Growing via new products, overseas ventures. To make up for the slowing domestic market, Ley Choon plans to sell more higher margin asphalt premix and is currently building its second asphalt plant that will be ready by early 2013. It is also venturing overseas, and has secured five contracts worth SGD50m via a joint venture in Brunei that have already started to contribute in 2012. In addition, it will be entering a new line of business, ecowaste recycling, in the PRC with the plan to start construction in 2013.

Closest rival is more attractive for now. Ley Choon’s closest competitor - OKP Holdings - appears to be more attractive than Ley Choon in terms of orderbook size, profit margins, financial strength and valuations for now. OKP is currently trading at a historical PE of 5.9x against Ley Choon’s 7.2x. However, if Ley Choon can boost its margins and orderbook significantly in the future, it has a fair chance of catching up with OKP.