New addition to the development business. Lian Beng (LBG) recently announced that, through its 50% owned JV, Spottiswoode Development Ltd., it has acquired the site of Dragon Mansion, situated at Blk 14, Spottiswoode Park Road for S$130m. The freehold site has a plot ratio of 2.8 and can potentially be redeveloped into a 36-storey residential development with potential gross floor area (GFA) of 118,943 sqft (including 10% bonus balcony areas). At the stated purchase price, land cost, based on total potential GFA, amounts to c.S$1093 psf. Given the site's freehold status, its prime location near Tanjong Pagar, and the fact other projects at the Spottiswoode area have fetched selling prices around S$2000 psf, we feel the acquisition cost is not excessive.
Continuing search for attractive opportunities. Along with Midlink Plaza, LBG has already deployed around S$260m during the past couple of months for approx. 247,019 sqft of development area (128,076 sqft of commercial area and 118,943 sqft of residential area). Based on our dialogue with management, we found that the group is undertaking these developments partly due to the receipt of returns from OLA Residences and Kovan Residences and also because they believed these sites were priced appropriately and represented good investment opportunities. The management also stressed that while the group will keep a lookout for development opportunities, construction will remain the focus of the group. We believe these developments are positives for LBG, as both are good locations and offer LBG chances to add construction projects to their order books.
Mandai Industrial development selling well. LBG launched the 55%-owned Mandai Industrial development only as recently as the 4Q of CY11 and to date, more than 90% of the development has already been sold. We believe this partly reflects the demand of industrial space but it is also testament to LBG's acumen of investing in property developments. We believe that LBG can also execute its latest commercial and residential developments well.
Impacts will mostly be felt after FY12. Most of the financial impacts of these latest land acquisitions will only be felt after FY12. After speaking to the management, we update our assumptions for strong sales from Mandai Industrial and factor in the additions of these new development resources. This raises our earnings estimates for FY12 and FY13 by c.8% and 17% respectively. Keeping our P/E ratio peg of 5x, this raises our fair value estimate to S$0.55 from S$0.51 previously. Maintain BUY rating.
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