(BUY, S$0.345, TP S$0.71)
Lian Beng Group (LBG) announced that it would be listing two of its subsidiaries on the Taiwan Stock Exchange. If shareholders’ approval is obtained during the EGM, we estimate the listing to take place six to nine months from now. With S$149.9m cash on hand (excluding the potential IPO proceeds), LBG is well positioned to accumulate land bank for property development. Trading at a mere 3.4x prospective P/E, we believe it has the capacity to trade up to the sector average of 7x for a TP of S$0.71. Maintain BUY.
IPO of concrete and engineering businesses. Lian Beng is spinning off two of its subsidiaries - the concrete and engineering businesses, to list on Taiwan Stock Exchange. Pre-clearance had been obtained from SGX, and an EGM would be held subsequently to obtain shareholders’ approval.
Rationale for listing. The proposed listing will provide greater clarity for credit profiling for financial institutions which wish to lend against the credit of the engineering and concrete business. In addition, it will enable its engineering and concrete business to fund its own growth. We estimate the listing process may take six to nine months. Taiwan’s concrete peers are trading at an average of 12.9x current year earnings, while the engineering/construction peers are trading at an average of 7.8x. This implies a blended 10.4x prospective earnings, which implies IPO proceeds of ~S$28m based on FY11 earnings of ~S$9m for its two subsidiaries in FY11.
Attractively valued at 3.4x FY12 P/E. On the back of strong order books of S$839m (as at May 11) and a good track record of project wins, we estimate LBG’s FY12 earnings to come in at S$53.5m, which suggests a prospective P/E of 3.4x. Maintain BUY.
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