Lian Beng

Lian Beng pulled in 4QFY15 net profit of $54.2m (+49.6% y/y) on revenue of $177.1m (+20.6%). This brought its FY15 earnings and revenue to a historical high of $108m (+24%) and $747m (+9.4%) respectively.

Full year revenue was led by construction, which surged to $628.8m (+46.7%) on ongoing and new construction projects, and dormitory operations, which contributed $22.4m (+23.4%). This was pared by a near absence of property development sales amounting to a mere $1m (FY14: $124.8m) and decline in the ready-mixed concrete segment to $93.4m (-15.8%).

Gross margins contracted 7.7 ppt to 10.6% following the full recognition of profit upon completion of industrial development project, M-Space in FY14. Consequently, gross profit fell 36.7% to $79.3m.

Pretax profit of $143.7m (+2.4%) was buttressed by a 40.6% jump in fair value gains on investment properties (mainly dormitory property) to $52.4m, as well as contributions from associates and JVs of $43.6m (FY14: $4.2m). The bulk of this came from the gain on disposal of its 19% stake in a proposed hotel JV at 122 Middle Road and share of profits from other development projects, namely:

1) NEWest (10% stake)- 91% sold
2) KAP Residences (15% stake) - 99% sold
3) The Midtown and Midtown Residences (50% stake) - 97% sold

Lower tax expense of $7.6m (-42.9%) due to government grants under the Productivity and Innovation Credit scheme and reduction in minority interests further bolstered the bottom line.

Operating cash flow is positive (but negative for 4QFY16), giving it a $187.1m war chest for it to further expand its business. Net gearing stood at a comfortable 0.19x as at May '15.

In view of its record performance, the group declared a total final and special DPS of 2¢, bringing its FY15 payout to 3¢ (FY14: 2.25¢).

Moving forward, the group’s $552m construction pipeline should provide some earnings visibility through FY17. Future earnings will also be underpinned by JV development projects such as the Midtown (97% sold), Spottiswoode Suites (78% sold), Mandai Foodlink (98% sold), NEWest, KAP Residences and Prudential Tower (32% owned)

Lian Beng is currently co-developing a dormitory and training centre for The Association of Process Industry at Jalan Papan, which would contribute to its recurring income stream when completed in mid-2016. It has also commenced asphalt premix production for the construction industry this year.

Lian Beng is trading at a discounted P/B of 0.62x and offers an implied dividend yield of 5.4%.