Excerpts from analysts' report


UOB Kay Hian says: "In Good Stead For Earnings Expansion Given Strong Property Development Sales And Growing Recurring Income"

 
VALUATION
OngPangAik_agm12Ong Pang Aik, executive chairman of Lian Beng Group.
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• Lian Beng (LBG SP) is currently trading at consensus FY15F PE 6.0x, lower than its peers’ average of 14.3x. Consensus expects FY15F dividend yield of 3% on the assumption of an 18% payout ratio.
 
INVESTMENT HIGHLIGHTS
• Sustained stronger than average net margins. Despite the increasing cost pressures due to factors such as higher labour wages, the group has been able to keep its net margins of 7- 10%, which is higher than its peers’ average of 5-5.5%. LBG’s upstream self-sufficiency through supplying its own ready-made concrete and owning its own construction equipment allows substantial cost savings and minimises raw material price risk.

We expect the group to sustain its higher-than average margins due to solid cost controls and healthy growth of its construction business through strong orderbooks. As at Oct 14, the construction orderbook stood at S$1b.
 
Property development sales expected to boost earnings. LBG has recently sold its stake in 122 Middle Investments for S$270m and a single strata unit of 5,952 sf of Prudential Tower for S$16.4m and continues to retain a strong portfolio of property developments.

Through JV partners such as Centurion, Oxley and Kim Seng Heng (KSH), it has investments in various property development projects. Stakes (10-40%) and profitable profits from pre-sold property development projects are likely to contribute to future earnings.
 
Diversified earnings. The group invested into workers’ dormitories in 2011 with a 55% stake in a JV with Centurion. The fully-occupied, freehold Mandai dormitory which holds 6,290 beds is expected to contribute to recurring income and enhance rental earnings quality.

We view the venture into the workers’ dormitory business favourably, and the strategic decision has yielded dividends as the growing revenue generated from the workers' dormitory business continues to offset weakness in ready-mixed concrete segment. 

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