OCBC Investment 2015-08-18: Libra Group Ltd - Striving to gain market share.


Libra Group Ltd: Striving to gain market share 

 1H15 revenue up 40% 
 Aiming for B1 license status by end FY15 
 Sector is facing challenges 

Current order book at S$120m 

  • Libra Group’s 1H15 revenue grew 40% YoY to S$39.0m, underpinned by more order intakes under its M&E segment and increased sales volume from its manufacturing segment. The building and construction solutions division also saw higher contribution at S$7.06m, up from S$0.6m a year ago. 
  • We understand from management that the current order book as of end June stands at S$120m, with most projects contributing more in 2H15. The acquisition of Cyber Builders Pte Ltd will potentially help the group achieve B1 contractor license status by the end of FY15, allowing them to tender for public sector projects of up to S$42m. 

Gross profit margin similar to 2H14 

  • However, gross profit margin declined from 26.1% to 20.1% as the group strived to gain market share in their manufacturing business and they took up more competitively priced contracts in the M&E segment. 
  • We see a similar picture for margins when we compare 1H15 vs. 2H14 (20.6%), and expect margins to stay around this level for the year. As a result of higher expenses, PATMI was 28% lower at S$2.1m. 

M&E players in challenging times 

  • The construction sector in Singapore has been deemed challenging. Taking a look at another player involved in M&E, Koyo International [nonrated] saw declines in both revenue (-20%) and bottomline (-36%) for 1H15. 
  • We note that Koyo International is currently trading at FY14 P/E of ~30x, whereas Libra Group is trading at 3.4x FY14 P/E. 
  • As a result of the tougher outlook, CEO Mr Chu has expressed interests to diversify into other businesses including hospitality and tourism. 

Reduced FV to S$0.27 

  • In view of the above, we have reduced our forecasts, which bring our fair value estimate down from S$0.37 to S$0.27. 
  • Following the recent sell-down on the stock, we still see sufficient upside supported by an estimated div yield of 7.7%, thus keeping our BUY rating for now. 
  • The group had declared an interim DPS of 0.5 S-cents, similar to last year’s. 

Jodie Foo | http://www.ocbcresearch.com/ OCBC Investment Research 2015-08-18
BUY Maintain BUY 0.27 Down 0.37