Libra Group

OCBC on 18 Aug 2015

Libra Group’s 1H15 revenue grew 40% YoY to S$39.0m, underpinned by more order intakes under its M&E segment and increased sales volume from its manufacturing segment. We understand from management that the current order book as of end June stands at S$120m, with most projects contributing more in 2H15. Due to higher expenses, PATMI was 28% lower at S$2.1m. M&E and construction players are in tough times now, and in view of the outlook, we have reduced our estimates, bringing our fair value estimate down from S$0.37 to S$0.27. Following the recent sell-down on the stock, we still see sufficient upside supported by an estimated div yield of 7.7%, thus keeping our BUY rating for now. The group had declared an interim DPS of 0.5 S-cents, similar to last year’s.

Current order book at S$120m 
Libra Group’s 1H15 revenue grew 40% YoY to S$39.0m, underpinned by more order intakes under its M&E segment and increased sales volume from its manufacturing segment. The building and construction solutions division also saw higher contribution at S$7.06m, up from S$0.6m a year ago. We understand from management that the current order book as of end June stands at S$120m, with most projects contributing more in 2H15. The acquisition of Cyber Builders Pte Ltd will potentially help the group achieve B1 contractor license status by the end of FY15, allowing them to tender for public sector projects of up to S$42m.

Gross profit margin similar to 2H14
However, gross profit margin declined from 26.1% to 20.1% as the group strived to gain market share in their manufacturing business and they took up more competitively priced contracts in the M&E segment. We see a similar picture for margins when we compare 1H15 vs. 2H14 (20.6%), and expect margins to stay around this level for the year. As a result of higher expenses, PATMI was 28% lower at S$2.1m. 

M&E players in challenging times
The construction sector in Singapore has been deemed challenging. Taking a look at another player involved in M&E, Koyo International [non-rated] saw declines in both revenue (-20%) and bottomline (-36%) for 1H15. We note that Koyo International is currently trading at ~30x FY14 P/E, whereas Libra Group is trading at 3.4x FY14 P/E. As a result of tougher outlook, CEO Mr Chu has expressed interests to diversify into other businesses including hospitality and tourism.

Reduced FV to S$0.27 
In view of the above, we have reduced our forecasts, which bring our fair value estimate down from S$0.37 to S$0.27. Following the recent sell-down on the stock, we still see sufficient upside supported by an estimated div yield of 7.7%, thus keeping our BUY rating for now. The group had declared an interim DPS of 0.5 S-cents, similar to last year’s.

Libra Group

OCBC on 2 Mar 2015

Libra Group achieved a solid set of results for FY14, underpinned by sharp execution from the new management team. Revenue was up 102% to S$63.7m on the back of a 161.8% increase in revenue from its M&E segment. Alongside an improved gross profit margin of 23.1%, PATMI grew a whopping 9.2x to S$5.3m. A positive momentum in contract wins also brought their order book up to S$121m as of 31-Dec 2014, which is an 124% increase from FY13’s order book of S$54m. Following an impressive turnaround in performance, the group declared a final DPS of 0.7 S-cents, with total DPS of 0.12 S-cents giving a 5% dividend yield (FY13: 1.3%). Maintain BUY. Our fair value estimate is increased to S$0.37, from S$0.33 previously, based on a 4.8x blended FY15/16F P/E.

FY14 PATMI up whopping 9.2 times 
Libra Group achieved a solid set of results for FY14, underpinned by sharp execution from the new management team. Revenue was up 102% to S$63.7m, as its M&E segment revenue increased 161.8% to S$46.0m and contributed 72% of full-year revenue. Revenue from its manufacturing segment rose 24.8% to S$16.2m, but there was a dip in manufacturing margin as the group focused on gaining market share. That said, overall gross profit margin improved by 5.7 ppt to 23.1% (FY13: 17.4%) on the back of better project execution and productivity. The group’s turnaround story continues, as PATMI grew a whopping 9.2x to S$5.3m. Notably, its receivables days also improved from 185 to 142 days through effective management control.

Contract wins boost order book 
A positive momentum in contract wins also brought their order book up to S$121m as of 31-Dec 2014, which is an 124% increase from FY13’s order book of S$54m. About S$12m comes from its upstream main contractor segment, which may start contributing to the group’s bottomline in the next two years. We believe that the license upgrades for its M&E segment and further contract wins will add to the sustainability of Libra’s continued growth ahead.

Higher gearing was expected
As mentioned in our initiation report, the increase in the group’s gearing (FY14: 73%) was due to the factory acquisition at S$16m in late 2014. The new factory is slated to help contain costs with potential rental savings of at least S$1m. We believe good margins and management of its cash conversion cycle will help maintain a healthy balance sheet going forward.

Maintain BUY with new FV of S$0.37
The group declared a final DPS of 0.7 S-cents, with total DPS of 0.12 S-cents giving a 5% div yield. Maintain BUY. Our fair value estimate is increased to S$0.37, from S$0.33 previously, based on a 4.8x blended FY15/16F P/E.

Libra Group Ltd

OCBC on 23 Feb 

After a series of contract wins announced, Libra’s wholly owned M&E subsidiary, Kin Xin Engineering, had successfully attained upgrades to a L6 category for its BCA licences related to air-conditioning, refrigeration and ventilation works (workhead ME01) as well as integrated building services (workhead ME15). The upgrades would enable them to tender for an unlimited amount of public government projects, whereas previously they were constrained to projects with contract values below S$14m. Ahead of its FY14 results to be released, we believe the group could achieve an estimated 8.0 times growth in earnings to S$4.7m. The counter’s share price has appreciated 7.5% since our last report in Jan-15. With a good dividend yield of 7.0% expected, maintain BUY with a fair value estimate of S$0.33.

Licence upgrades create more opportunities
After a series of contract wins announced, Libra’s wholly owned M&E subsidiary, Kin Xin Engineering, had successfully attained an upgrade in its BCA grading from L5 category to L6 category for air-conditioning, refrigeration and ventilation works (workhead ME01). This enabled the group to receive a similar upgrade to L6 category for its integrated building services (workhead ME15) according to BCA regulatory requirements, which takes into consideration the company’s financial capability, relevant technical personnel, management certifications and track record of projects. The upgrades would enable Kin Xin Engineering to tender for an unlimited amount of public government projects. Prior to this, an L5 status had constrained them to tender for projects with contract values below S$14m. With Libra’s year-to-date order book estimated at S$105.6m, we think that Libra has strengthened its position to secure bigger contract wins amid a healthy public construction outlook.

Focusing on organic growth 
Having had a private placement back in Sep-14, Management also recently declared a reallocation of S$1.4m in proceeds, which was initially intended for potential investments and acquisitions, to be utilised in the group’s general working capital instead. This includes funding the growth of its mechanical and electrical segment as well as the building and construction business in relation to labour requirements and making payments to suppliers. 

FY14 results likely to incite confidence 
Ahead of its FY14 results to be released, we believe the group could achieve an estimated 8.0 times growth in earnings to S$4.7m driven by its three business segments – M&E, manufacturing as well as general construction solutions. Upside could also arise if the group proves to have improved its management of doubtful receivables. Given the group’s expansion plans, we may however see some erosion in margins. The counter’s share price has appreciated 7.5% since our last report in Jan-15. With a good dividend yield of 7.0% expected, maintain BUY with a fair value estimate of S$0.33.

Libra Group Ltd

OCBC on 6 Jan 2015

Libra announced last month that it had won a collective S$11.3m of M&E contracts. With year-to-date order book estimated at S$105.6m, we believe the group is on track to achieve PATMI forecasts of S$4.7m and S$7.8m in FY14 and FY15 respectively. The latest awards, secured through its subsidiary Kin Xin Engineering, include a S$6m M&E sub-contract for a residence hall development in Nanyang Technological University (to be completed by Jan-16), a S$4.2m sub-contract for an industrial development at Sin Ming Road as well as similar works for Ngee Ann Polytechnic Block 22 worth S$1.1m (latter two to be completed this year). As the group aims to increase market share for its coil resale business, we would likely see some erosion in the segment’s gross profit margin (FY13: 20.9%). This should not be a cause for concern as we maintain our view on Libra’s significant earnings growth potential underpinned by their strong M&E business. There is good value at current levels and we remain positive on Libra's growth prospects. Reiterate BUY with an unchanged fair value estimate of S$0.33.

S$11.3m of M&E contracts awarded in Dec-14 
Libra announced last month that it had won a collective S$11.3m of M&E contracts. With year-to-date order book estimated at S$105.6m, we believe the group is on track to achieve PATMI forecasts of S$4.7m and S$7.8m in FY14 and FY15 respectively. The recent orders were secured through its subsidiary Kin Xin Engineering, and include a S$6m sub-contract for air-conditioning and mechanical ventilation (ACMV) and fire protection works to a residence hall development in Nanyang Technological University (to be completed by Jan-16). Another S$4.2m sub-contract was awarded for ACMV works to an eight-storey auto workshop industrial development at Sin Ming Road, as well as similar works for Ngee Ann Polytechnic Block 22 worth S$1.1m (both to be completed this year). We note that working for reputable customers such as Singapore Piling and Civil Engineering, together with the management’s rigorous receivables control, could lead to higher quality receivables and ease concerns as a result.

Coil resale business likely to see increased volume 
We keep in mind that the manufacturing and supplying business under Libra Engineering contributed about 40% to total revenue in FY13. As the group aims to increase market share for its coil resale business, we would likely see some erosion in the segment’s gross profit margin (FY13: 20.9%). This should not deter investors as we maintain our view on Libra’s significant earnings growth potential underpinned by their strong M&E business. In addition, with the group seeking to improve labour productivity, project execution and synergies, these measures should benefit the group’s bottom-line performance.

Upside from main contract business
In the latter half of this year, we can expect to see upside from a license upgrade for its main contract business. The lift from a C2 to B1 status would increase the contract tender limit from S$1.4m to S$40m, thus rendering this segment to become a sustainable avenue for order book contribution. There is good value at current levels and we remain positive on Libra's growth prospects. Reiterate BUY with an unchanged fair value estimate of S$0.33.

Libra

OCBC on 18 Nov 2014

Libra recently announced that it has been awarded S$9.5m of M&E contracts, which brings its order book up to an estimated S$94.4m year-to-date. This is ~3.0x of last year’s revenues (FY13: S$31.5m) and represents good momentum for the group which has announced S$21.6m of new contracts over the last two months. The latest awards comprise a S$5.4m M&E sub-contract for a proposed condo project at Tampines St 86 (to be completed in Jul-16), and a S$4.1m sub-contract for a teaching facilities building (Block 8A) at Temasek Polytechnic (to be completed in Aug-15). We believe the new management team is gaining traction in terms of growing business volumes, while leveraging on tailwinds from the firm public construction outlook. Since our initiation on Libra as our top pick in the small cap space on 27 Oct, its share price has appreciated 7.5% to date and we continue to see value at current levels given significant potential for earnings and dividends growth ahead. Reiterate BUY with an unchanged fair value estimate of S$0.33.

Awarded S$9.5m of M&E contracts
Last Friday evening, Libra announced that it has been awarded S$9.5m of M&E contracts, which brings its order book up to an estimated S$94.4m year-to-date. These latest contract wins comprise a S$5.4m M&E sub-contract for the supply, fabrication, delivery and installation of air-conditioning and mechanical ventilation system for a proposed condo project at Tampines St 86, and a S$4.1m sub-contract for the electrical, air-conditioning and mechanical ventilation system, building management system, and lab equipment for proposed additions and alterations involving the new erection of a teaching facilities building (Block 8A) at Temasek Polytechnic. The group has commenced work on the first contract, which is scheduled to be completed in Jul-16, and the second contract is expected to be completed in Aug-15.

Positive order book momentum so far
The current order book of S$94.4m is approximately 3.0x of last year’s revenues (FY13: S$31.5m) and represents good momentum for Libra which has announced S$21.6m of new contracts over the last two months. Management has indicated that the latest contract wins are expected to contribute to its earnings over FY14-15. That said, the rate of order book replenishment year to date is in line with our expectations, and we leave our FY14 and FY15 PATMI forecasts unchanged at S$4.7m and S$7.8m, respectively. 

New management gaining traction
We believe the new management team is gaining traction in terms of growing business volumes and strengthening margins through active rationalization of business operations, while leveraging on tailwinds from the firm public construction outlook (forecasted at S$14b-18b per annum over FY15-16). Since our initiation on Libra as our top pick in the small cap space on 27 Oct, its share price has appreciated 7.5% to date and we continue to see value at current levels given significant potential for earnings and dividends growth ahead. Reiterate BUY with an unchanged fair value estimate of S$0.33.

Libra Group

OCBC on 27 Oct 2014

We initiate coverage on Libra Group as our conviction BUY in the small-cap space with a fair value estimate of S$0.33. Based on an analysis of this M&E specialist’s order book, upcoming FY14 earnings is forecasted to increase a whopping 8.0 times YoY to S$4.7m. We further forecast FY15 earnings to grow 68.0% YoY to S$7.8m as the new management team, who took over operations in 1Q14, continues to expand and position the company to capitalize on the healthy public construction outlook. We highlight that this under-the-radar company is already showing initial signs for an earnings upswing: 1H14 earnings had jumped 218.1% YoY to S$3.0m. We believe Libra represents good value here at only 2.7x FY15 forward P/E (versus a peer average of 7.4x), and particularly so as the group’s dividend yield is forecasted to jump dramatically from 1.6% last year to 8.1% in FY14 and 9.7% in FY15. Our fair value estimate of Libra is based on an undemanding 4.8x forward FY15 PE, which represents a 35% discount versus its peer average. Increased visibility of Libra’s earnings and dividends growth ahead will likely form compelling re-rating catalysts for its share price, in our view.

Earnings forecasted to grow 8x in FY14 and 68% in FY15
We initiate coverage on Libra Group Ltd (“Libra”) as our conviction BUY in the small-cap space with a fair value estimate of S$0.33. Given our analysis of this M&E specialist’s order book, upcoming FY14 earnings is forecasted to increase a whopping 8.0 times YoY to S$4.7m. We further forecast FY15 earnings to grow 68.0% YoY to S$7.8m as the new management team, who took over operations in 1Q14, continues to expand and position the company to capitalize on the healthy public construction pipeline. Our fair value estimate of Libra is based on an undemanding 4.8x forward FY15 PE, which represents a 35% discount to the industry peer average of 7.4x.

Already showing initial signs of earnings upswing
We highlight that this under-the-radar company is already showing initial signs for an earnings upswing: 1H14 earnings had jumped 218.1% YoY to S$3.0m. The new management team, which includes majority shareholder and executive Chairman/CEO Mr Chu Sau Ben, took over day-to-day operations in 1Q14 and is rapidly gaining traction in terms of growing business volumes (including the upstream main contractor segment), leveraging on the firm public construction outlook in Singapore (forecasted at S$14b-18b per annum over FY15-16), and strengthening margins through active rationalization of business costs and operations. 

Good value here with key re-rating catalysts ahead
We believe Libra represents good value here at only 3.4x FY14/15 blended P/E and 2.7x FY15 forward P/E (versus a peer average of 7.4x FY15 PE). In addition, Libra’s dividend yield is forecasted to jump dramatically from 1.6% last year to 8.1% in FY14 and 9.7% in FY15. Looking ahead, we expect increased visibility of Libra’s earnings and dividends growth – particularly through new order wins and upcoming FY14 results – to form compelling re-rating catalysts for its share price. Initiate with BUY and S$0.33 fair value estimate.