Event
Lian Beng’s 50:50 joint venture with Centurion Properties bought the 68-unit, freehold Dragon Mansion at Spottiswoode Park for $130m last week. The redevelopment can yield 118,943 sq ft of GFA, implying a sale price of $1,093 psf ppr and an estimated breakeven of $1,580 psf. As a comparison, projects in the primary market in the area, comprising Spottiswoode 18 and Spottiswoode Residences, are selling at a median price of $2,000 psf. Maintain BUY.
Our View
Dragon Mansion was first put up for sale in May with a reserve price of $150-156m but was unsuccessful. It returned to the market in October, gunning for $132-142m. We understand the tender drew a handful of bids but Lian Beng’s bid of $130m came out tops. Two adjacent projects, Roxy Pacific’s Spottiswoode 18 and UOL’s Spottiswoode Residences, are over 90% sold at a median price of $2,000 psf. This bodes well for the redevelopment of Dragon Mansion, which will see little competition. We have yet to factor in any earnings contribution from this project.
The sale of M-Space, Lian Beng’s industrial project at Mandai Estate, has been very positive. A check with the marketing agent SLP International indicates that the project is over 90% sold at an average price of $650 psf. When the project is completed by the middle of next year, we estimate the pre-tax development profit of $30m will give a boost to FY May13 earnings.
With the addition of Dragon Mansion, Lian Beng has an attributable unsold landbank of 84,574 sq ft. We expect the group’s earnings to continue to be largely (over 60%) driven by construction, backed by a strong orderbook of $761m excluding the expected contracts from Mandai Estate ($66m including the construction of worker’s dormitory), Midlink Plaza ($45m) and Dragon Mansion ($42m).
Action & Recommendation
We maintain our BUY recommendation on Lian Beng with a target price of $0.62, pegged at 6x FY May12F PER.
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