Lum Chang: is an under-appreciated and under-researched deep value play. It boasts an impressive book-to-bill ratio at 8.2x (industry average 1.6x), backed by strong customers such as the LTA, Ascendas Land and Ho Bee. Contract visibility is strong, given its $1.1b orderbook, stretching till 2015.
Valuations are attractive both at an absolute level and relative to peers. The stock trades at 0.7x P/B on 18.7% ROE; while trailing P/E at 10.6x should go under 5x (vs peers ~7x), once Lum Chang begins to run down its orderbook.
The stock provides a substantial margin of safety with net cash of $0.155/share, and potential earnings from its current orderbook that could translate to an estimated $0.164/share. Combined, both elements amount to 116% of current share price.
Investors get to enjoy a steady dividend income while waiting for a re-rating. The payout ratio is a decent 30-50%, and DPS has been rising over the years to its current yield of 7.3%.
A back-of-the-envelop calculation suggests a fair value of $0.59 by 2016, when most of its current projects are completed.
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