• 1H16 revenue up 13%
• Supported by M&E segment
• Facing strong competition

M&E main revenue driver

Libra Group's 1H16 revenue increased 13.1% YoY to S$44.2m, but PATMI fell 26% to S$1.6m. The gain in revenue was driven by the mechanical and electrical engineering (“M&E”) segment, which grew 39.2% YoY to S$31.8m. Both the manufacturing segment as well as the building and construction solutions (“B&C”) segment posted lower sales, down 17.7% and 25.9% to S$7.5m and S$5.2m, respectively. The latter was due to less work done on existing projects as they had reached the tail end of the projects.

Competition remains tough

Overall gross profit margin (GPM) maintained at about 19.06% vs. 19.6% for FY15. The group’s M&E as well as building and construction solutions segment continued to see more competitively priced projects in the industry. The B&C segment was back to a gross loss of S$0.4m due to fewer projects secured and contribution of new projects have not materialized. With competition expected to remain high resulting in depressed pricing, we see GPM at around similar levels for the year ahead while management stays focused on cost control and value engineering.

Higher expenses from several fronts

The group also faced higher expenses from several fronts, resulting in a decline in bottomline profits. Administrative expenses increased by 28% to S$6.9m mainly due to land rental expense, depreciation and property tax incurred for the company’s factory at 53 Loyang Drive and the property at Sungei Kadut loop, in addition to higher wages. Separately, the group received S$0.5m of rental income from the Sungei Kadut property, which is expected to continue.

Pick-up in general sector outlook not expected

Given that the outlook for the sector continues to remain challenging, we have adjusted our estimates accordingly. No interim dividend has been declared as well, vs. 0.5 S-cents/share a year ago. Rolling forward our valuations to 4.5x FY16/17F P/E, our fair value estimate is reduced from S$0.24 to S$0.19. Due to sufficient upside at current price levels, we maintain our BUY rating.  

Source: OCBC Research - 15 Aug 2016