Lian Beng Group

Kim Eng on 21 Aug 2012

A clear leader in the construction sector. Lian Beng Group’s (LBG) share price, along with rest of the sector, has underperformed vis-à-vis the STI. We believe that its current valuation, at ex-cash FY13 PER 1.9x, is unjustified. The Group has defied all odds to achieve a strong net profit of close to SGD50m. It currently holds a strong outstanding construction orderbook of SGD652m as of FY12. We are also impressed with the group’s active lookout for opportunities to boost its recurrent income. Maintain BUY with TP of SGD0.63.

Work dormitory beds increase by 32%. The group has obtained a provision permit from URA to develop a third workers’ dormitory block in its remaining vacant plot in Mandai. This will add 1,540 beds to its existing 4,750 beds. We are expecting this addition to contribute SGD5m to its bottomline. The dormitory block is scheduled to TOP by 4Q13. The group’s last plot in Mandai, which was used to build M-Space @ Mandai, is 100% sold out, and will be recognised upon completion in 1H13.

Teaming up with Oxley. Lian Beng has been astute in leveraging on Oxley’ Holding’s expertise to build and sell shoe-box cum retail units. The market’s appetite for small units took many by surprise: this could set the trend going forward in tandem with the changing social dynamics. The group has purchased 10–50% stakes in five projects, King Albert Park, Dragon Mansion, Seletar Garden, Hougang Plaza, and Hong Leong Gardens Shopping Centre. All these projects are JVs with Oxley and other builders. This also helps Lian Beng to secure better visibility in its construction orderbook.

Balance sheet shows flexibility. LBG holds a cash war chest of SGD86.1m (42% of market cap), which is just waiting to be unleashed. It is highly capable of either utilising its cash reserves, or taking on debt for acquisitions or JV opportunities. We estimate its free cash flow to stay strong averaging SGD43m per year till 2015.

Building on its core strength. We reiterate our BUY call on Lian Beng with a target price of SGD0.63, pegged at 6x FY13 PER. We anticipate steady growth ahead for the Group. Moreover, it has strong ROE and offers an attractive and sustainable dividend yield of 5.1%.