• Obtained upgrades to BCA licences
• No constrain to tender limits
• FY14 results a potential catalyst

Licence upgrades create more opportunities

After a series of contract wins announced, Libra’s wholly owned M&E subsidiary, Kin Xin Engineering, had successfully attained an upgrade in its BCA grading from L5 category to L6 category for air-conditioning, refrigeration and ventilation works (workhead ME01). This enabled the group to receive a similar upgrade to L6 category for its integrated building services (workhead ME15) according to BCA regulatory requirements, which takes into consideration the company’s financial capability, relevant technical personnel, management certifications and track record of projects. The upgrades would enable Kin Xin Engineering to tender for an unlimited amount of public government projects. Prior to this, an L5 status had constrained them to tender for projects with contract values below S$14m. With Libra’s year-to-date order book estimated at S$105.6m, we think that Libra has strengthened its position to secure bigger contract wins amid a healthy public construction outlook.

Focusing on organic growth

Having had a private placement back in Sep-14, Management also recently declared a reallocation of S$1.4m in proceeds, which was initially intended for potential investments and acquisitions, to be utilised in the group’s general working capital instead. This includes funding the growth of its mechanical and electrical segment as well as the building and construction business in relation to labour requirements and making payments to suppliers.

FY14 results likely to incite confidence

Ahead of its FY14 results to be released, we believe the group could achieve an estimated 8.0 times growth in earnings to S$4.7m driven by its three business segments – M&E, manufacturing as well as general construction solutions. Upside could also arise if the group proves to have improved its management of doubtful receivables. Given the group’s expansion plans, we may however see some erosion in margins. The counter’s share price has appreciated 7.5% since our last report in Jan-15. With a good dividend yield of 7.0% expected, maintain BUY with a fair value estimate of S$0.33.

Source: OCBC Research - 23 Feb 2015