LIAN BENG

UOBKayhian on 23 Jan 2015

VALUATION

• Lian Beng is trading at 3.7x FY14 PE, offering a FY14 dividend yield of 3.7%.

 RESULTS

• Lian Beng’s 1HFY15 net profit doubled to S$35.5m on the back of increased contributions from associates and JVs. Share of results of associates and JVs surged to S$21.4m (1HFY14: loss of S$0.9m) due to the disposal of a 19% stake in a proposed hotel development at 122 Middle Road, and the recognition of developer profits from projects such as Newest, KAP Residences and The Midtown. 
• Its construction orderbook remains strong at S$821m as at 30 Nov 14, and shows good earnings visibility until FY17.

INVESTMENT HIGHLIGHTS

• As a BCA A1-graded contractor with a 40-year operational track record, Lian Beng prevails as an established local contractor, having served a wide range of clients, including the HDB, Ministry of Defence and Marina Bay Sands.
• Savvy business management. As competition intensified in the local construction scene, Lian Beng was quick to react as it diversified into complementary businesses such as the supply of ready mixed concrete (RMC) and its most recent venture into asphalt premix (used for roads) to control costs.
• Diversified business units...Lian Beng currently has four main business segments:a) construction, b) property development, c) construction-related businesses (engineering and leasing of construction machinery, supply of RMC and asphalt) and d) the leasing of a workers’ dormitory. Excluding FV gains and profits from property developments, we estimate profit from construction and related businesses as well as rental income from its workers’ dormitory should account for about 71%, 22% and 7% of FY14’s profit respectively.
• … with value waiting to be unlocked. For FY14, profit from construction-related business contributed to S$9.2m of Lian Beng’s FY14 pre-tax profit. This number is expected to grow as the new asphalt plant, in which Lian Beng holds a 40% stake, is set to come on stream by early-15 and start contributing to net profit in FY16. As highlighted in our previous report, we do not dismiss the prospect of a possible spinoff of this segment in the future as the profit grows. To recall, in 2011, Lian Beng had proposed to spin-off and list its construction-related businesses on the Taiwan Stock Exchange. The plan was abandoned in 2012 due to unfavourable market conditions and new policies imposed by the relevant authorities in Taiwan.
• Our view. Lian Beng’s share price has seen a correction of about 20% from its 52- week high. From Oct 14-Dec 14, Lian Beng repurchased 19.6m shares (about 3.7% of total outstanding shares) through their share buyback programme with prices ranging from S$0.60-0.68/share. With a diversified earnings base, dividend yield of 3% and price support coming from its daily share buybacks, we think Lian Beng is worth a look at current levels.