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Wednesday, June 12, 2013

LIAN BENG GROUP: Riding High Into FY2014, A Record Year?


chart6.13At a stock price of 53 cents, the company has a market cap of S$278 million. The trailing dividend yield is 1.9%.Chart: BloombergLIAN BENG GROUP shares have had a good ride up so far this year, from 41 cents to 53 cents recently for a 29% gain.

Among the buyers of the stock are insiders: an investment vehicle of the controlling shareholders (the Ong family), as well as the executive chairman himself.

Firstly, the investment vehicle, Ong Sek Chong & Sons Pte Ltd, bought 1.948 million shares at around 40 cents in January.

The executive chairman and MD of Lian Beng Group, Mr Ong Pang Aik, himself scooped up 1.11 million shares in the year to date. During this period, his lowest purchase price was 41 cents while the most recent was 52 cents.

Analysts are highlighting the stock's investment merits. 

This morning, Alison Fok of Maybank Kim Eng upgraded the stock  to 'buy' with a revised target price of SGD0.68.
She said that at current levels, Lian Beng is trading at 3.1x FY14F P/E only, versus peers which trade at between 5x and 7x P/E. 

OngPangAik_agm12Ong Pang Aik, chairman and MD of Lian Beng Group. 
NextInsight file photo.
She pegged Lian Beng's construction earnings  at 6x, on par with its construction peers.
After meeting with  Lian Beng’s management for updates on ongoing construction and property launches, she is "now convinced that FY5/14 will be a record breaking year with earnings surpassing its 2012 peak of SGD51.4m.

The company’s order book currently stands at SGD1.2b.
On May 27, Terence Wong, the co-head of research at OSK-DMG, highlighted Lian Beng Group in a report.

"I will once again be adding Lian Beng, one of Singapore’s largest contractors, to my model portfolio. I will be buying 500,000 shares at SGD0.52 per share. FY13 (FYE May) profit will not look pretty, but FY14 looks like a strong comeback year, with recognition of its Mandai industrial property coming through." 

Lian Beng reported a 24.2% year-on-year (yoy) decrease in net profit to S$30.7 million for the nine months ended 28 February 2013 mainly due to:

* a lower gross margin for the period, 
* higher operating expenses, and 
* a one-off gain of S$7.9 million on the sale of an investment property in 9MFY2012.

9MFY2013 revenue increased 5.1% to S$350.7 million on higher revenue recognition from construction projects. 

StanChart visits Lian Beng

Standard Chartered analysts Meenal Kumar, CFA, and Regina Lim, in a June 4 report, said: "We think LBG could be a key beneficiary of the construction boom in Singapore as the government rolls out infrastructure to accommodate its growing population."

The analysts also pointed out several key risks faced by Lian Beng Group. Labour costs increased 5-8% in the past 12 months, and management expects a similar increase in the next 12 months. 

Strong industry-wide construction demand could lead to high input prices as builders compete for resources. 
The company mitigates these rrisks with construction support business, noted the StanChart analysts.
A primary benefit of these support businesses is mitigation of price risk and ensuring availability. Lian Beng has access to its own sources of rebars and ready-mix concrete, which account for 40% of material costs. 

It also has in-house steel engineering, scaffolding and transport capabilities. 
It continues to grow its construction support business, and may buy tug boats to defray costs when importing sand. And Lian Beng "remains open to spinning off this business, which has grown to a standalone size."

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