Lian Beng Group

Kim Eng on 12 Oct 2012

Revenue down on lack of one-off gain. Lian Beng reported a 16.5% YoY drop in revenue to SGD113.4m for 1QFY5/13. Stripping out the SGD7.9m one-off gain from the sale of an investment property in 1QFY5/12, bottomline contracted by 7.4% YoY to SGD10.6m. The lower- than-expected results could also be attributed to lower sales recognition from the property development division. We maintain our BUY call in view of Lian Beng’s healthy construction orderbook and burgeoning recurring income.

Margins shrank on lower property sales recognition. Lian Beng’s gross and net margins fell by, respectively, 1.1ppt YoY and 4.9ppt YoY, following lower sales recognition of property development projects. The proceeds from its industrial project, M-Space, are expected to be fully recognised in 1HFY5/14F. Separately, Spottiswoode Suites, previously Dragon Mansion, is slated for launch by year-end. Based on estimated breakeven price of SGD1,575 psf, we expect the project’s ASP to be SGD2,000 psf. The 50%-owned Hougang Plaza will also be ready by year-end. We believe these two projects will contribute substantially to FY5/14F earnings.

In net debt position. From net cash position, Lian Beng’s total borrowing has risen by SGD96.6m QoQ to SGD197.2m on the back of higher financing costs for the development of Spottiswoode Suites and Hougang Plaza, as well as increased working capital for its other residential stakes and reclassification of the development cost for its remaining vacant plot in Mandai Estate. The group’s net gearing now stands at 0.05x.

But strong cash-churning machines will provide support. Lian Beng’s construction business and recurring income from precast concrete products are expected to help shore up the group’s dividend payout of SG2cts for FY5/12, which translates to a yield of 5.1%. Its construction orderbook currently stands at SGD650m.

Reiterate BUY. We reiterate our BUY call, but lower our target price to SGD0.54, due to higher cash flow needed which may affect timing of dividend. The stock currently trades at 4.1x FY5/12 historical PER vis-à- vis the sector average of 5.5x.