LIAN BENG: Read its bottom line, not top

MidtownResidencesbuidingfacade Strong property development earnings contribution such as from Midtown Residences (above) is boosting Lian Beng's bottom line by leaps and bounds. Internet picture
TOP LINE is not a good gauge of Lian Beng Group's strong financial position.

Its 1QFY2016 net profit attributable to shareholders surged by a whopping 169.5% year-on-year to reach S$32.3 million, thanks to exceptional sales contribution from its joint venture property development projects. The strong bottom liine growth was due to a 134.1% jump in pretax profit that came mainly from its joint ventures and investments in property development projects.

Even though these projects are core businesses that contributed as much as 82.5% to pretax profit, they are not reflected at the top line as the Group usually owns less than 50% in such ventures.

Ong Lay Koon 14.4 'We have a significant amount of revenue from property development projects in the pipeline for recognition over the next 2 years,' said Executive Director, Ong Lay Koon.
NextInsight file photoIts share of results from associates and joint ventures was up 465% at S$28.6 million, mainly on profits recognized from the following projects: NEWest (91% sold), KAP Residences (99% sold), The Midtown and Midtown Residences (97% sold).

The share of results from associates was also boosted by a one-off profit recognition from its industrial development project, Ecotech@Sunview, which received its TOP during the quarter.

On the other hand, revenue decreased 19.1% to S$135.6 million due to lower revenue from its construction segment.

Other 1QFY2016 highlights:
1. Strong cash reserves: S$220.2 million as at 31 August 2015.
2. Strong order book: S$452 million as at 31 August 2015
3. Share buyback: purchased 4,025,400 shares from the open market

Details of its financial results can be found here.

Recent developments

1. Export of asphalt premix: commenced 3 months ago

2. Expansion of dormitory business

Construction of Lian Beng's second dormitory in JV with Centurion is expected to be completed in the middle of 2016. The new dormitory is located in Jalan Papan and will house workers in the petroleum and petrochemical industries. The facility is expected to be ready in mid-2016.

3. Overseas expansion of property development investments

The Group is testing out the property development market in the UK and in Australia with relatively small investments.

In July, it took a 15% stake in a prominent site in Leeds through Singapore property consortium with Heeton and KSH. The site is about 2.45 acres in size and has approval for mixed development for over a million square feet. In March, it acquired a site in London for about S$31 million, which will be redeveloped into serviced apartments of about 85 rooms.

It is also foraying into Australian real estate. It is acquiring a freehold property with built-up area of 2,084.4 sqm in Melbourne for A$24.9 million and co-developing a mixed-use asset in Brisbane that has a total investment value of A$150 million.

Executive director Ong Lay Koon met investment professionals at the Group's results briefing held at Lian Beng's HQ on Thursday. Below is a summary of questions raised at the meeting, and her replies.

Q: What rental income do you expect to generate with these new property developments, including dormitories?
Including dormitories, Prudential Tower, the Melbourne project, we are targeting S$20 million a year in rental income by FY2016.

Q: Is your export business of ready-mixed concrete profitable?
Yes, we are breaking even after expenses and depreciation. We are trying to tender for premix projects.

LBG SP	53.5 cents
52-week range	46.1 – 68.2 cents
Market cap	S$267.4 million
Current PE	2.11 X
1QFY2016 Pre-tax margin	25.5%
NAV per share	96.42 cents
Dividend yield	1.89%

Q: What was the average price you paid for your Treasury shares?

We have 23 million Treasury shares with average price above 50 cents.

Q: What do you look at to decide whether to repurchase shares?
There are guidelines under the share buyback mandate, such as purchase price being no more than 105% of the average closing price of the last 5 market days. We also look at our book value when deciding whether to repurchase shares. At one time, we bought at about 60 cents because our book value was about 70 cents then.

Comments

#1 Jimmykoh 2015-10-17 10:00

At NAV of 96+cents, they should infact do an aggressive sharebuyback. She mentioned they did a buyback at 60+ cents when NTA was 70 cents, so by the same logic, at NTA of 96+ cents, with share price at 53 cents, wouldn't it be logically to buyback even more shares???

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LIAN BENG: Read its bottom line, not top

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