Maintain BUY
Previous Rating: BUY
Current Price: S$0.335
Fair Value: S$0.51
Strong 1Q - improvements for both top and bottom lines. Lian Beng reported a strong set of 1QFY12 numbers - the company recorded 21% YoY top line improvement and 76% (unadjusted) net profit increase. Top line was largely in line (S$136m actual vs. S$134m forecast) but net profit was some way ahead (S$19m actual vs. S$11m estimate). This sharp increase in earnings is mostly attributable to gains from sale of its property on New Industrial Road, where it recognised gains of ~S$7.8m in other operating income. Without these non-recurring gains, Lian Beng's YoY net profit improvement appears more modest at 6%, but still slightly ahead of our estimates.
Steady revenue contribution from construction. Top-line improvement for Lian Beng was possible due to steady revenue contribution from its core construction business and readymixed concrete segment. Looking forward, we believe this trend will continue for the remainder of FY12 - given Lian Beng's good execution capabilities, we believe its construction contracts completion will be on track and free of delays. We also believe demand for its concrete products should remain fairly stable given the amount of residential and infrastructure projects planned in the near term. Sales from its secondary focus in development will also remain fairly robust as Lian Beng continues to add new development projects (industrial and commercial recently) as some of its residential projects move closer to being fully sold.
Foray into new developments - Midlink Plaza. A new addition to Lian Beng's property development portfolio is the redevelopment of the Midlink Plaza. Lian Beng (19% stake), together with a consortium, acquired the site (GFA of 128076 sqft) for S$126.8m, and plans to redevelop the office-cumretail building into a 16-storey hotel with approx. 450-500 rooms. Redevelopment of the site is subject to authority approvals and is unlikely to see redevelopment works begin within the next 2-3 quarters. Therefore, this foray into commercial development will not impact near-term earnings estimates.
Maintain BUY and fair value estimate of S$0.51. We continue to like Lian Beng for 1) its excellent track record in both private and public residential construction; 2) its strong order books, currently on track for completion; and 3) its undemanding valuations. Given the completion of their construction projects thus far, we expect FY12 earnings to remain strong. We maintain our BUY rating for Lian Beng, with a fair value estimate of S$0.51, representing 53% upside.
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