• Recent order wins give assurance
• Manufacturing business may grow as well
• Maintain BUY

S$11.3m of M&E contracts awarded in Dec-14

Libra announced last month that it had won a collective S$11.3m of M&E contracts. With year-to-date order book estimated at S$105.6m, we believe the group is on track to achieve PATMI forecasts of S$4.7m and S$7.8m in FY14 and FY15 respectively. The recent orders were secured through its subsidiary Kin Xin Engineering, and include a S$6m sub-contract for air-conditioning and mechanical ventilation (ACMV) and fire protection works to a residence hall development in Nanyang Technological University (to be completed by Jan-16). Another S$4.2m sub-contract was awarded for ACMV works to an eight-storey auto workshop industrial development at Sin Ming Road, as well as similar works for Ngee Ann Polytechnic Block 22 worth S$1.1m (both to be completed this year). We note that working for reputable customers such as Singapore Piling and Civil Engineering, together with the management’s rigorous receivables control, could lead to higher quality receivables and ease concerns as a result.

Coil resale business likely to see increased volume

We keep in mind that the manufacturing and supplying business under Libra Engineering contributed about 40% to total revenue in FY13. As the group aims to increase market share for its coil resale business, we would likely see some erosion in the segment’s gross profit margin (FY13: 20.9%). This should not deter investors as we maintain our view on Libra’s significant earnings growth potential underpinned by their strong M&E business. In addition, with the group seeking to improve labour productivity, project execution and synergies, these measures should benefit the group’s bottomline performance.

Upside from main contract business

In the latter half of this year, we can expect to see upside from a license upgrade for its main contract business. The lift from a C2 to B1 status would increase the contract tender limit from S$1.4m to S$40m, thus rendering this segment to become a sustainable avenue for order book contribution. There is good value at current levels and we remain positive on Libra's growth prospects. Reiterate BUY with an unchanged fair value estimate of S$0.33.

Source: OCBC Research - 6 Jan 2015