UOB Kay Hian Research 2015-07-31: LIAN BENG GROUP (LBG SP) - Asset Backed Contractor With a Rising Recurring Income. Maintain BUY.


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/



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