Lian Beng Group's (LBG) 1QFY13 earnings were 44.5% lower YoY at S$10.5m, as revenue dipped 16.5% YoY to S$113.4m. Earnings decline was due to the absence of a one-off gain in 1QFY12 of S$7.9m and higher operating expenses. The lower revenue was mainly due to lower revenue from property development. While LBG has fully sold its 55%-owned industrial development, it can only recognise the relevant revenue upon the project obtaining TOP, which is expected in end FY13. Outlook is expected to be healthy, backed by the government's plans for infrastructure building and its pipeline of residential project developments. It currently has an order book of S$650m, which would last through till FY15. Maintain BUY with a TP of S$0.59, based on 6x FY13 earnings.

Balance sheet remains healthy. LBG has a net gearing of 10% as at end 1QFY13. While most of its cash balance is likely to be used in its development projects, the Group would still be able to take on more borrowings to finance its projects.

Increase in worker dormitory beds. LBG has obtained approvals to develop a third workers' dormitory block in its remaining vacant plot in Mandai, which would add 1,540 beds to its existing 4,750 beds. The dormitory block is scheduled to TOP by 4QFY13. This parcel of land is part of the plot that will also house its industrial property, M-Space @ Mandai (100% sold). Revenue from M-Space will only be recognised on TOP.

Plans to launch two new projects. Despite the recent measures surrounding the residential property segment, LBG plans to launch its 50%-owned Spottiswoode Suites and 50%-owned Hougang Plaza in FY13. Its development projects are all JV with other builders. This would also help to lower any potential risks it may face in the property development segment.

Valuation is attractive as LBG is currently trading at 4.1x FY13F earnings (peer average: 6.6x). Maintain BUY, with a TP of S$0.59, based on 6x FY13F P/E.

DMG & Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. Please refer to important disclosures at the end of this publication.

Source: OSK