Lian Beng steady, says Kim Eng

The company is on track to meet analyst’s 12.5% growth forecast.

Kim Eng Research noted:

Lian Beng’s 1HFY May12 earnings came in at $30.1m, on track to meet our full-year forecast of $54.2m, which would represent growth of 12.5% YoY. The stock is trading at 3.5x FY May12F PER with a dividend yield of more than 5%. It is also trading below its book value of $0.395.

Net cash improved to $82.6m, 44% of its market capitalisation. Excluding net cash, adjusted FY May12 PER is 1.9x. A robust orderbook worth $772.1m and pre-sold units from M-Space provide earnings visibility for the next 24 months.

Lian Beng has returned to the public sector for building works. It outbid 12 other contractors to top the tender for a 149-unit HDB project in Tampines and lift upgrading works in Ang Mo Kio. Although the contract value is not exactly significant, it is a step towards penetrating the public sector after a seven-year absence and which could be a catalyst for higher growth.

As many as 25,000 HDB flats are expected to be rolled out this year, adding an estimated $3.1b contracts to the industry.

Lian Beng’s acquisition of Dragon Mansion with Centurion last November increases its exposure to the residential property market, which is being tempered by the latest cooling measures. But downside, if any, should be limited by its low breakeven of $1,565 psf (versus today’s ASP of $2,000 psf in the Spottiswoode area) and the scale of the project (<119,000 sq ft).

The acquisition was also made before the implementation of the Additional Buyer’s Stamp Duty (ABSD) in December and therefore not affected by the new rule under which developers have to pay 10% ABSD on en bloc purchases unless all residential units are fully sold in five years.

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