Lian Beng bulldozes ahead with a 21% jump in revenue

Excluding a one‐time gain of $7.9m from the sale of an industrial property in New Industrial Road at Bartley, earnings from its core construction business were in line with expectations. Orderbook stood at $761m as at August 2011. Maintain BUY on the stock’s attractive valuation of 3.3x FY12 PER.

Our View
Lian Beng’s 1QFY May12 construction revenue was within our estimated recognition schedule and net margins were maintained at 10.2%. No material contribution came from the property development segment. Cash position was further bolstered to $181.4m and borrowings lowered to $106.2m . Consequently, net cash improved to $75.2m, or 42.4% of market capitalisation.

The Estate. The land will be divided into three plots. The first plot will be developed into a 141-unit industrial project called M-Space. We expect development profits to exceed $30m based on an ASP of $650 psf. The second plot will house a 4,700‐bed workers’ dormitory. When operational, we estimate it will contribute $3m p.a. to the group’s bottomline, thereby strengthening its recurring income base. The third plot is still in the planning stages.

Midlink Plaza, a commercial building at Middle Road that was put up for sale in August this year, was sold for $126.8m to a consortium in which Lian Beng owns an effective 19% stake. The site can be redeveloped into a hotel and the consortium has the option to own and operate it, or to sell it upon completion. We expect Lian Beng to be awarded the construction in any earnings contribution from this project.

Action
We maintain our BUY recommendation on Lian Beng with a target price of $0.62, pegged to 6x FY12 PER.