Libra Group Ltd - OCBC Investment 2017-08-17: Cease Coverage

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LIBRA GROUP LIMITED 5TR.SI

Libra Group Ltd - Cease Coverage

• Slowdown in revenue and PATMI.
• Better revenue for B&C segment.
• Challenging operating environment.

YoY decline in 1H17 PATMI 

• Libra Group reported a 30.2% decline in 1H17 revenue to S$30.8m and PATMI fell 52.5% to S$0.76m. The decline in revenue was due to
  1. lower mechanical and electrical engineering (M&E) revenue by 42% to S$18.3m,
  2. lower manufacturing revenue by 20% to S$6.0m, but partially offset by
  3. higher revenue from building and construction solutions (B&C) segment which increased by 25% to S$6.5m on the back of increasing project realization. 
• As a result, gross profit was also lower with a slightly lower gross profit margin of 18.3% vs. 19% in 1H16. 
• Due to lower bonus and incentives incurred during the year, administrative expenses decreased 25%. There was also a slight increase in ‘other income’ to S$1.0m due to a gain on disposal of a factory in Ang Mo Kio.
• Net result was a slowdown in bottomline.

Contract wins continue 

• Notably, Libra Group announced that they have won a few contracts with a total value of approximately S$42m. This included
  1. a contract for the proposed new erection of one block of 5-storey residential building along Koon Seng Road,
  2. a sub-contract for the supply, installation, construction, completion and maintenance of architectural works to Lentor Station and
  3. a sub-contract for works at Stevens Station. 
• Works for the first contract is scheduled to complete in 2018 while the other two are to complete in 2020.

Ceasing coverage 

• Looking ahead, the group believes that the operating environment remains challenging with continuous pressures on contract value and tough competition for new projects to be secured.
• Nonetheless, they will continue to focus on cost control while managing the completion of existing projects. They will also pursue investment opportunities beyond Singapore.
• With that said, due to an internal reallocation of resources, we are ceasing coverage on the stock.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2017-08-17

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