Below expectations. 1HFYMay13 results came in below market expectations. Construction orderbook remains lukewarm at SGD547m, down 29.1% from last year’s strong orderbook of SGD772m. Although the stock is fundamentally sound, we believe recent property cooling measures and increased costs incurred from its property stakes could impact Lian Beng’s earnings and its ability to pay dividends. Downgrade to HOLD with a target price at SGD0.45, pegged to 6x FYMay13F P/E.

Dampened margins. 1HFYMay13 reported sales and net profit of SGD234.9m (-1.2% YoY) and SGD19.8m (-35.1%YoY) respectively. Gross margin fell by 2.2ppts due to lower margin construction contracts recognised as well as lowered recognition from the property segment. Higher operating expenses were also incurred for preparation to launch Spottiswoode Suites.

Zero contracts recorded for 2Q. Current orderbook stands at SGD547m, 29.1% down from last year’s strong orderbook of SGD772m. So far this quarter; no contracts have been awarded to Lian Beng. We expect Lian Beng to be focusing on their 50% owned Spottiswoode Suites and Hougang Plaza next year onwards, which would mean the group will rely more heavily on property earnings.

But Spottiswoode Suites soft-launch favourable. Lian Beng together with JV partner, Centurion, has soft-launched Spottiswoode Suites, and received an approximate take-up of slightly over 50%. Over 100 units are estimated to have achieved ASP of SGD2,200psf, with a 3-4% premium to Spottiswoode 18 and Spottiswoode Residences launch prices. If fully sold, we are estimating SGD36.9m pre-tax profit for thegroup’s 50% stake, to be recognised over FY14-17E.

Downgrade to HOLD. Lian Beng is trading at 5.3x FYMay13 P/E, whereas its peers are trading at a forward P/E of 5.7x. We have slashed our earnings forecast as we adjust our profit recognition in the property development side and cut dividend by 1 ct in view of higher capital needed to fund property development.

Source: Maybank Kim Eng Research - 15 Jan 2013