Singapore | Construction & Engineering

Asia Pacific Equity Research

LIAN BENG GROUP | BUY

MARKET CAP: USD 227M AVG DAILY TURNOVER: USD 1M 11 Oct 2013 Company Update

1QFY14 RESULTS MARRED BY MARKETING EXPENSES

1QFY14 PATMI down 31% YoY Gross margins dip due to revenue mix Increasing uncertainties in resi segment

BUY (maintain)
Fair value add: 12m dividend forecast versus: Current price 12m total return forecast S$0.58 S$0.02 S$0.54 12%

1QFY14 profit down 31% YoY Lian Beng announced 1QFY14 (ended 31 Aug 2013) PATMI of S$7.3m down 30.9% YoY mostly due to increased selling and marketing expenses incurred at launched projects (Spottiswoode Suites, The Midtown, Newest, KAP Residences and Eco-tech@Sunview) and the cessation of tenant leases at Hougang Plaza which was demolished for redevelopment. We also note the relatively new dormitory business contributed an estimated S$1.3m - S$1.4m in attributable net profits over the quarter. Falling gross margins from shifting revenue mix Topline for 1QFY14 came in 44.2% higher YoY at S$163.5m due to higher contributions from the construction and property development businesses as well as the ready-mixed concrete division. Due to a shift in revenue mix with a heavier percentage contribution from the construction segment, however, overall gross margins continue to dip falling from 14.1% in 1QFY13 to 12.2% in 1QFY14. Expect profit recognition from M-space in 2Q-3QFY14 Looking forward to 2Q-3QFY14, we expect profit contributions from the fully sold 55%-owned industrial development, M-space, which can only be recognized upon TOP as stipulated by the accounting standard INT FRS 115. We note that already launched development projects from the group are achieving fairly firm sell-through rates and that the construction order book remains strong at S$1.2b as at end Aug 2013 only marginally down from S$1.3b as at end May 2013. BUY with a FV estimate of S$0.58 We note that Lian Beng continues to enjoy a firm construction book of S$1.2b, which would buttress forward revenues to an extent, and also a strong balance sheet with S$200.7m in cash with a fairly benign net gearing of 25.2%. That said, we see increasing uncertainties in the domestic residential space from recent cooling measures which could result in headwinds for the groups property development business going forward. BUY with a fair value estimate of S$0.58.

Analysts Eli Lee (Lead) +65 6531 9112 Eli Lee@ocbc-research.com Sarah Ong +65 6531 9678 sarahong@ocbc-research.com

Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$283.4 / USD226.8 S$0.9 / USD0.8 18.2 0.3484 - 0.6172 66.3 529.8 SGX LBG SP LIBG.SI L03 Industrials Const & Eng Ong S.C - 26% 1m -3 -5 3m -6 -6 12m 35 27

Relative total return Company (%) STI-adjusted (%) Price performance chart
Share Pr ice ( S$) 0.67 0.61 0.55 0.48 0.42 0.36 Oct - 12 Jan- 13
Fair Value

Index Level 5200 4700 ` 4200 3700 3200 2700 Apr -13
LBG SP

Jul-13

Oct - 13
FSSTI

Sources: Bloomberg, OIR estimates

Key financial highlights Year ended 31 May (S$m) Revenue Cost of sales Gross profit PATMI EPS (S-cents) Cons. EPS (S cts) PER (x) P/NAV (x) ROE (%) Net gearing (%) FY12 445.0 -371.5 73.5 52.1 9.8 na 5.4 1.2 22.5 9.7 FY13 505.6 -440.6 65.0 39.4 7.4 na 7.2 1.1 15.1 76.1 FY14F 682.6 -573.4 109.2 64.7 12.2 12.7 4.4 0.9 20.4 37.7 FY15F 716.7 -623.5 93.2 63.5 12.0 12.5 4.5 0.8 17.0 7.0

Industry-relative metrics
Per centil e 0th Mkt Cap Beta ROE PE PB Company Industr y Aver age 25th 50th 75th 100th

Note: Industry universe defined as companies under identical GICS classification listed in the same exchange. Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document.

MCI (P) 004/06/2013

OCBC Investment Research Singapore Equities

Exhibit 1: Quarterly financial highlights 1QFY13 Revenue Cost of sales Gross profit Other operating income Distribution expenses Admin expenses Other operating expenses Finance cost Share of assoc./JV profits PBT Income tax PAT MI PATMI Sources: Company financials (S$m) 113.4 -97.5 15.9 2.7 -0.2 -4.3 -1.4 -0.2 0.0 12.6 -2.0 10.6 0.1 10.5 1QFY14 (S$m) 163.5 -143.5 20.0 1.0 -3.0 -4.4 -1.8 -0.5 -1.6 9.7 -1.2 8.5 1.2 7.3 % Chg (YoY) 44% 47% 25% -63% >500% 3% 23% 212% nm -23% -38% -20% nm -31% 4QFY13 (S$m) 154.9 -138.9 16.1 -1.1 -0.8 -3.8 -2.4 -0.4 3.3 10.9 -1.5 9.5 0.2 9.3 % Chg (QoQ) 6% 3% 24% -187% 295% 16% -25% 29% -149% -11% -16% -10% 619% -22%

OCBC Investment Research Singapore Equities

Company financial highlights

Income statement Year ended 31 May (S$m) Revenue Cost of sales Gross profit Other operating income Admin expenses Share of assoc./JV profits Others PBT PAT PATMI

FY12 445.0 -371.5 73.5 14.6 -16.5 0.0 -9.2 62.4 51.8 52.1

FY13 505.6 -440.6 65.0 6.4 -17.4 3.3 -9.7 47.6 40.2 39.4

FY14F 682.6 -573.4 109.2 6.8 -19.1 8.0 -11.3 93.6 77.7 64.7

FY15F 716.7 -623.5 93.2 7.2 -20.1 15.0 -11.5 83.8 69.5 63.5

Balance sheet As at 31 May (S$m) Cash and equivalents PPE Development properties Total assets Current financial liabilities Non-current financial liabilities Total liabilities Shareholders equity Total equity Total equity and liabilities

FY12 186.8 50.0 102.9 587.4 103.7 105.5 355.1 231.5 232.2 587.4

FY13 170.9 58.8 167.8 792.7 106.2 263.1 530.6 260.7 262.1 792.7

FY14F 204.4 55.4 137.8 858.1 74.3 249.9 526.2 317.4 331.9 858.1

FY15F 158.4 52.5 97.8 795.2 59.5 125.0 401.7 373.0 393.4 795.2

Cash flow statement Year ended 31 May (S$m) PBT Working capital change Cash tax paid Operating cash flow Investing cash flow Financing cash flow Net change in cash Cash at beginning of the year Other adjustments Cash at end of the year

FY12 62.4 31.2 -8.1 80.7 -8.8 -35.0 36.9 149.9 0.0 186.8

FY13 47.6 -65.5 -9.8 -26.0 -115.3 125.4 -15.9 186.8 0.0 170.9

FY14F 93.6 13.4 -15.9 87.6 0.0 -54.0 33.6 170.9 0.0 204.4

FY15F 83.8 44.3 -14.2 102.5 0.0 -148.5 -46.0 204.4 0.0 158.4

Key rates & ratios EPS (S-cents) NAV per share (S-cents) PER (x) P/NAV (x) Gross profit margin (%) Net profit margin (%) Net gearing (%) Dividend yield (%) ROE (%) ROA (%) Sources: Company, OIR forecasts

FY12 9.8 43.7 5.4 1.2 16.5 11.6 9.7 3.7 22.5 8.9

FY13 7.4 49.2 7.2 1.1 12.9 8.0 76.1 2.3 15.1 5.0

FY14F 12.2 59.9 4.4 0.9 16.0 11.4 37.7 2.8 20.4 7.5

FY15F 12.0 70.4 4.5 0.8 13.0 9.7 7.0 2.8 17.0 8.0

Company financial highlights

OCBC Investment Research Singapore Equities

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Co.Reg.no.: 198301152E Carmen Lee Head of Research For OCBC Investment Research Pte Ltd

Published by OCBC Investment Research Pte Ltd

Important disclosures