Lian Beng Group

Kim Eng on 25 Sept 2012

In a sweet spot. Prospects for the construction sector in Singapore remain positive. Despite a cut in a construction forecast, the segment continues to outperform overall GDP growth estimates. Lian Beng will begin its property launches as scheduled with Hong Leong Gardens in October, and Dragon Mansion and Hougang Plaza following that. Its strong position as a contractor and successful venture into property development makes it our top pick in the construction sector. Reiterate BUY.

Launches to start in October. Lian Beng has received the outline planning provision for its respective stakes in property development, and we expect the launch of Hong Leong Gardens to take place in October. The group holds a 10% stake in Hong Leong Gardens with Oxley Holdings leading the consortium. It is zoned for mixed use, and we expect selling prices for residential and retail space at SGD1,500psf and SGD3,000psf respectively.

Divestment of stake in Emerald Hill. Lian Beng has fully divested its 10% stake in 111 Emerald Hill for SGD16.9m. We did not account for this project in our forecasts, as earnings from the project are fully dependent on units sold after its TOP in August, thus there is no impact on our FYMay12 estimates. Lian Beng’s remaining active project, Lincoln Suites, has an 81% take-up rate and is expected to TOP in late 2014.

Secured contracts. Construction remains the core business, accounting for 75% of sales. Lian Beng has secured a 50% stake in a contract worth SGD169m for 361 units in Thomson Grand with Paul Y C&E. Works started in August and this job has boosted its construction order book to SGD736.4m, which will be recognised through to 2015.

Steamrolling ahead. We like Lian Beng for its superior construction order book with an even mix of public and private projects, as well as a slew of properties slated for launch over the next few months. Maintain BUY with a target price of SGD0.63 pegged at 6x FYMay13 PER, backed by an attractive dividend yield of 5.1%.