Lian Beng Group

Lian Beng Group

THIS Beng is back!: Lian Beng Group (LBG) is one of the major local building contractors with integrated civil engineering, engineering and construction support capabilities. Besides public works, this group has undertaken many private condominium projects, and more recently, part of the Marina Bay Sands development. As of October 2007, its orderbook stands at $628 million, which would be progressively recognised over the next two to three years.

Only the fittest survive: Despite the poor performance of the construction sector in the past, LBG has managed to stay in the black every year since 2004. Now, with too few contractors servicing a large number of public and private contracts, the tide has turned in favour of contractors. Contractors like LBG are now able to command higher pre-tax margins of about 15 per cent compared with 5 per cent in the past, due to the lack of well-qualified and experienced competitors. Many property developers are bearing the higher construction costs in exchange for lower execution risks from the established contractors.

Construction sector's bull-dozing ahead: The construction sector is expected to maintain its recovery in the foreseeable future. After being jolted to life by the two integrated resorts amounting to over $10 billion in construction budget, the sector will also see burgeoning demand from the residential property segment, with as many as 41,560 units in the pipeline. LBG is well-poised to secure more orders as the number of jobs will be aplenty.

Taking two bites of the cherry: LBG is set to further participate in the rising property market by taking equity stakes in a number of upcoming projects, such as the joint acquisition of Lincoln Lodge, a joint venture in Upper Bukit Timah Road with LaSalle Investment Management, and the recently awarded site at Simon Road/Kovan. In addition, LBG wholly owns a freehold site along Mountbatten. Development profits of up to $72 million from these projects will provide it with an additional source of income, even as the group focuses on construction as its principal activity.

'Beng' for the buck! Buy: With healthy profit margins and increased bargaining power, LBG appears to be a great alternative to traditional developers. Its impressive track record and sound financial management make LBG very attractive. We are initiating coverage with a target price of $1.22, based on a sum-of-the-parts valuation with 16 times FY09 PE on recurrent income from its construction business, along with the addition of the present value of development profits.
BUY