Target Price: SGD0.70
Profitability Set To Improve
LBG’s 1Q14 PATAMI fell y-o-y in spite of stronger y-o-y revenue growth. It is expected to achieve stronger PATAMI in the next few quarters, fuelled by its strong orderbook and earnings contribution from M-Space after the latter obtains temporary occupation permit (TOP). With LBG’s expertise and experience, it should benefit from the pipeline of public projects. Maintain BUY and SGD0.70 TP, based on a 6x FY14F P/E.
¨ Margins to improve in subsequent quarters. As a result of higher marketing expenses relating to the sale of property development projects in which LBG has interest, the group’s 1Q14 PATAMI slipped 31% while its profit margin shrank. As these marketing expenses are expected to come down substantially in the subsequent quarters, margins may improve. In addition, once the company’s fully-sold 55%-owned industrial development M-Space obtains TOP, LBG would be able to recognise the sales revenue from this development, which would give a boost to its FY14 earnings.
¨ Outlook remains positive, buoyed by the Government’s plans to enhance the country’s infrastructure. As at end-1Q14, LBG had an impressive orderbook worth SGD1.2bn. This is expected to keep the company busy through FY16. Given its capabilities and track record, LBG is in a position of strength to continue to secure new contracts. As an A1-grade contractor, it is also in a good stead to secure government projects of unlimited value.
¨ Maintain BUY. We are estimating a PATAMI of SGD61.2m for FY14, taking into account potentially stronger revenue growth and higher marketing expenses. However, margins are expected to remain under pressure in the face of rising labour costs. Our TP is based on 6x FY14 earnings. We think LBG might distribute higher dividends in FY14 as it starts to record profits from M-Space. Another positive going for the company is its strong orderbook, which will continue to be supported by heightening construction activities in both the private and public sectors.
Publish date: 23/12/13