Wednesday, November 13, 2013

Lum Chang : Results Review (S&P)

Lum Chang Holdings
Price: SGD0.34

Results Review
• LCH 1QFY14 (Jun.) net profit leaped to SGD13.8 mln (+322% YoY) attributed mainly by the full recognition of the group’s 20%-owned Executive Condominium (EC), Esparina Residences which just obtained TOP in September. The results were broadly within expectations. Better-than-expected revenue, lower minority interest and taxation were offset by weaker-than-expected gross margin of 10.1% (FY14:10.8%) and higher administration expenses.

• Group revenue declined by 47% YoY to SGD88.3 mln due to lower construction revenue as the Esparina Residence was completed during the quarter and works for Phase 2 Science Park Drive have not started but will be commencing soon. Meanwhile, the construction of Ripple Bay is underway and recognition is expected to commence in subsequent quarters. The lower revenue was partially offset by a jump in gross margin to 10.1% (vs. 7.0% in 1QFY13) due to cost savings for a major construction project. The group however, reported higher distribution and marketing cost (+114% YoY) and administration cost (+34% YoY) attributable to higher sales from the group’s development in Malaysia coupled with steeper staff and depreciation costs.

• LCH’s order book stands at SGD566.4 mln. The group recently clinched a contract worth SGD178.6 mln for the construction of The Glades, a 726-unit condominium project located at Bedok Rise. The target completion date is in the second half of 2016.

Earnings Outlook / Estimates Revision
• We have increased our FY14 and FY15 net profit forecasts by 1% and 6% respectively after incorporating lower taxation and minority interest coupled with the new contract win which will be mainly recognized in FY15. These will be partially offset by higher marketing administrative and finance costs. At current share price, the stock offers a decent dividend yield of about 5.8%.

• LCH second JV EC project, Twin Fountains at Woodlands has sold about 83% of its total 418 units as at end-Sept 2013. The project is jointly developed with Frasers Centrepoint, where LCH holds a 30% stake. The sales of Twin Fountains are expected to boost the group’s earnings in FY16/FY17 when the EC project is due for completion in 2016. Meanwhile, the construction sector outlook remains positive on the back of sustained high level of public projects. Manpower shortage and rising labour cost however, continues to be key challenges to the industry amid the construction boom.

Investment Risks
• A sharp rise in labor or material costs, shortage of skilled labor or increase in project execution costs can adversely affect project viability and profitability. Similarly, a deteriorating economic outlook will likely reduce construction demand (particularly for private projects) and may affect the group’s property sales.

Source/Extract/Excerpts/来源/转贴/摘录: S&P Capital IQ Equity Research
Publish date: 11/11/13

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