Asset Backed Contractor With a Rising Recurring Income
- Maintain BUY but with a higher SOTP target price of S$0.79 due to a surge in the Lian Beng’s net asset value. Lian Beng is currently trading at 0.6x P/B (one of the lowest among its local peers), 3.2x FY16F PE and a dividend yield of 5.4%.
FINANCIAL RESULTS
Results in line
- Results in line with estimates, as Lian Beng recorded FY15 core profit before tax of S$91.3m, or 105% of our full-year estimate.
- Although 4QFY15 gross profit was relatively flat, profit before tax (ex fair value gain on investment properties) surged 54% yoy as share of profits of associates and JVs jumped on the recognition of property development profits from various projects.
5.4% dividend yield.
- A final dividend of S$0.02 was declared, bringing the total dividend per share value for FY15 to S$0.03 and implying a dividend yield of 5.4%.
INVESTMENT HIGHLIGHTS
- Current market cap is 100% backed by cash, investment securities and investment properties.
- Taking into account only Lian Beng’s cash, investment properties and investment securities (mostly corporate bonds and equity investments eg. Shares in Centurion corp), excluding the group’s debt and non-controlling interest, we note that Lian Beng is valued at S$279m (S$0.547/share) which is almost equivalent to its current market cap.
More cash coming back home.
- As Lian Beng’s property development projects reach completion in the next 2 years, we expect the group to progressively receive cash proceeds (capital and development profit) from its JVs and associates.
- For eg. We estimate Lian Beng to receive net cash proceeds of S$30m (S$0.059/share) following the TOP of Eco-tech@Sunview in FY16.
- This will further strengthen its balance sheet where net gearing continue to remain healthy at 16.5%.
Better earnings quality in FY16.
- We expect rental income from investment properties to rise more than 40% yoy in FY16 to S$13m (S$0.025/share) driven by rental contribution from Lian Beng’s 30% stake in Space@Tampines, (an industrial property, which recently received TOP and has been fully leased out), and its recently acquired property in Melbourne, Australia.
Rising and sustainable dividend.
- With its growing profitability, Lian Beng’s dividend has grown 50% since 2012.
- We raise our dividend forecast for FY16 and FY17 to S$0.035 and S$0.03 respectively, as we believe the growing rental income from investment properties and strengthening balance sheet (with the potential cash flow coming in) will underpin the group’s ability to pay out dividends.
Resume support from daily share buyback.
- Lian Beng has repurchased nearly 1.8m shares in May/Jun 15 at S$0.515-S$0.56/share as the number of issued shares shrunk 3.8% yoy to 509.9m shares as at 31 May 15.
Adjust earnings estimates
- We adjust our FY15-16 earnings estimates by +5.8% and -2.5% respectively, as we tweak the timing for profit recognition for certain property development projects, and slightly lower our construction contract wins assumption.
(Loke Chunying)
Source: http://research.uobkayhian.com/
