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Reproduced with permission from SharesInvestment.com


HAVING SURVIVED the mid 1980s recession, the Asian financial crisis and the more recent SARS epidemic, Mainboard-listed Lian Beng Group (Lian Beng) is no stranger to coping with harsh and tumultuous operating environments.

While a number of its industry peers have succumbed to past construction down-cycles, Lian Beng has over the years, built up a remarkable and enviable track record, which speaks volumes about the company’s solid business foundation and fundamentals.

Staring the face of adversity, Ong Pang Aik, executive chairman of Lian Beng, is well-prepared to weather yet another economic storm.

“The current global slowdown will definitely affect the demand for construction services, but even so, there is a positive aspect. The costs of construction raw materials have fallen considerably,” Ong told Shares Investment (Singapore) during an exclusive interview.

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Ong Pang Aik: We will also be growing our foothold in the construction of ultra-luxury niche projects.


Building Success

Adhering to its mission statement of providing the best quality for services and products to all customers at the most competitive cost, Lian Beng is one of our nation’s leading home-grown building construction groups with integrated civil engineering, engineering and construction support service capabilities.

Boasting an A1 and A2 grade registration with the Singapore Building and Construction Authority in general building and civil engineering respectively, Lian Beng is eligible to tender for public sector’s building projects with unlimited contract value and civil engineering projects with a contract value of up to $105.5m.

The differentiating factor of Lian Beng compared to other construction players lies in its extensive in-house support capabilities.

The company possesses sufficient construction machinery and equipment such as tower cranes, generators, scaffoldings and gondolas for its own use, and even leases some of these out during the quieter seasons.

“With the current fleet of machinery at our disposal, there is no need for us to rent equipment such as tower cranes from third parties,” Ong remarked.

Lian Beng’s operations are also supported by its 90%-owned ready-mixed concrete facility.

At present, the bulk of the ready-mixed concrete produced is used for Lian Beng’s internal requirements.

As for labour, Lian Beng has in 2000 established its own training centre in Dhaka, Bangladesh, to ensure not only a steady supply of manpower, but also consistency in its work quality.

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Artist's impression of Ritz-Carlton Residences.


Going Upscale

In an effort to strengthen its foray into the high-end residential market, Lian Beng has established a wholly-owned subsidiary, Millennium International Builders (Millennium), last August to specifically focus on this promising endeavour.

Subsequently, Millennium was appointed main contractor for the prestigious The Ritz-Carlton Residences, Singapore, Cairnhill deal worth a whopping $99.5 million.

“Apart from handling larger-scale condominium and commercial projects, we will also be growing our foothold in the construction of ultra-luxury niche projects, which call for specialised technical knowledge in dealing with challenging design features,” Ong highlighted.

Apart from The Ritz-Carlton Residences, the Group since June 2008, also secured four other construction projects worth some $186 million.

These comprise two private residential development projects, one civil engineering project involving the design and construction of a NEWater pipeline spanning the Changi NEWater plant to Jurong, Tuas and Jurong Island, and a construction project awarded by the Defence Science and Technology Agency for the development of camp facilities at Kranji.

This has raised its total orderbook to a staggering $660 million.

As announced in the Budget for fiscal 2009, the local government will increase public sector construction spending to between $18 billion and $20 billion in 2009, arising from the planned ramp-up in infrastructure development and bringing forward of $1.3 billion of projects.

Significantly higher than the $15 billion contracted in 2008 and $6 billion in 2007, this initiative could further boost Lian Beng’s orderbook, given the company’s industry expertise and reputation.

Lian Beng has earlier completed a housing project in the Republic of Maldives for the latter’s tsunami-hit victims.

It has also completed a community and educational buildings project as well as a wastewater disposal/collection project for the same island.

According to Ong, the company will continue to look for opportunities outside of the little red dot.

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Lian Beng is down 77% over the past 1 year.


Growth Intact

From FY05 to FY08, the company’s top- and bottom-lines have grown at a compounded annual growth rate of 9.5% and 100.7% respectively.

Its return on equity has also been on an uptrend, rising from FY05’s 2.7% to FY08’s 11.0%.

For the six months ended 30 November 2008, Lian Beng’s revenue surged 42% year-on-year to $151.0m.

However, its net earnings only inched up a marginal 9% to $8.8m mainly attributable to a dip in gross profit margin from 15.6% to 12.2%.
As at 30 November 2008, Lian Beng had generated cash and cash equivalents of $3.9 million as opposed to a $5.4 million deficit in the previous corresponding period. Its current ratio stood at a healthy 2.0 times.

Since the start of 2009, Lian Beng’s share price has been gyrating in a narrow range between $0.115 and $0.145. As at the time of writing, the company is trading at $0.12, translating to a 44.2% discount to its net asset value per share of $0.215.

At a historical PE and yield of 5.0 times and 3.9%, respectively, Lian Beng’s valuation is definitely undemanding.

Originally published on www.sharesinvestment.com, and reproduced here with permission.

 

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