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Lian Beng Group (LBG SP, $0.335, BUY, TP $0.62) – Lian Beng reported a 76% YoY increase in net profit to $19.3m for 1QFY May12. Excluding a one‐time gain of $7.9m from the sale of an industrial property in New Industrial Road at Bartley, earnings from its core construction business were in line with expectations. Orderbook stood at $761m as at end‐August 2011. Maintain BUY on attractive valuation of 3.3x FY May12 PER. [email protected]
SUNNY Last: 2,668.3 (+28.00) High: 2,683 Low: 2,590
STI TECHNICALS The Singapore stock market advanced in yesterday’s session with the STI holding above the 2,650 level. Expect the index to borrow strength from the Dow overnight and it is likely to test the 2,700 psychological level.
Hot stock PEC Ltd (PEC SP, $0.785, NOT RATED) – PEC’s share price has fallen by 31% YTD and is trading at just 6x forward earnings. The specialist engineering company has $159m in cash, which represents some 79% of its share price. Stripping this out, its earnings multiple is just 2.7x. While we expect the stock to continue to be exposed to negative sentiment due to its cyclical exposure, its relatively stable earnings, decent orderbook and cash give it the potential for a major rebound. [email protected]
11 October 2011
Overnight market snapshots Dow Jones Nasdaq FTSE 100 CAC 40 DAX Index
11,433.18 2,566.05 5,399.00 3,161.47 5,847.29
+330.1 +86.7 +95.6 +65.9 +171.6
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Kim Eng Research Portal: This is part of our efforts to better engage YOU, our valued client. Everything is just a click away. Get actionable Top news in bite‐sized pieces trading ideas each day. It’s even iPhone friendly. OVERNIGHT… Free public access for now, so mark down this site US stocks surged in yesterday’s session, closing at a high, with the Dow up 3% and the S&P 500 up and share the joy with your friends! 3.4%. This was amid optimism that France and www.kimengresearch.com.sg Germany’s pledge yesterday to resolve the Eurozone debt crisis will rescue the financial markets. Shares of US financials in particular rallied as worries eased that lenders would be exposed to losses in Europe. LOCAL… Shell restarts some Bukom plants after fire. This is after carrying out safety checks. A probe by the Ministry of Manpower as to the cause of the fire is still ongoing.
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SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
WHAT’S COOKING
Lian Beng Group Analyst: Ooi Yi Tung 65‐64325712 [email protected]
Event Lian Beng reported a 76% YoY jump in net profit to $19.3m for 1QFY May12 on the back of a 21% YoY increase in revenue to $135.8m. Excluding a one‐ time gain of $7.9m from the sale of an industrial property in New Industrial Road at Bartley, earnings from its core construction business were in line with expectations. Orderbook stood at $761m as at end‐August 2011. Maintain BUY on attractive valuation of 3.3x FY May12 PER.
Our View Lian Beng’s 1QFY May12 construction revenue was within our estimated recognition schedule and net margins were maintained at 10.2% (FY May11: 10.4%). No material contribution came from the property development segment. Cash position was further strengthened to $181.4m and borrowings were brought down to $106.2m (FY May11: $139.8m). Consequently, net cash improved to $75.2m, or 42.4% of market capitalisation. The group has announced plans for its freehold industrial land in Mandai Estate. The land will be divided into three plots. The first plot will be developed into a 141‐unit industrial project M‐ Space. We expect development profits to exceed $30m based on an ASP of $650 psf. The second plot will house a 4,700‐bed workers’ dormitory, which we estimate will contribute $3m net profit on a full‐year basis when operational, strengthening the group’s recurring income base. The third plot is still under planning.
Midlink Plaza, a commercial building at Middle Road that was put up for sale in August this year, was sold for $126.8m to a consortium in which Lian Beng owns an effective 19% stake. The total development cost is estimated to be $409,400 per key, which implies a breakeven room rate of $122/night. As a comparison, nearby three‐star Hotel Ibis is currently asking for at least $160/night, implying a decent margin of 23.4%.
Action & Recommendation We maintain our BUY recommendation and target price of $0.62, based on 6x FY May12 PER.
Summary Financials Year End May 31 Sales (S$ m) Pre‐tax (S$ m) Net profit (S$ m) EPS (S cts) EPS growth (%) PER (x) EV/EBITDA (x) Yield (%)
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2010 345.7 29.0 24.0 4.5 41.3 7.4 3.7 2.4
2011 507.3 58.3 48.2 9.1 100.4 3.7 1.9 4.8
2012F 524.0 65.6 54.4 10.3 12.9 3.3 0.6 5.4
2013F 524.2 58.8 48.7 9.2 ‐10.5 3.6 0.6 5.1
2014F 601.0 75.4 60.7 11.5 24.7 2.9 0.3 5.7
HOT STOCK
PEC Ltd Analyst: Rohan Suppiah 65‐64321455 [email protected]
Up‐to‐date in 60 seconds Background: PEC is an engineering, project management and maintenance services provider to the oil and gas, petrochemical and pharmaceutical industries. The majority of its business is in Singapore, but it also carries out projects in the UAE and China. Its revenue is around 70% of project works, while the remainder consists of maintenance contracts, primarily for projects it has constructed.
Our view Earnings stable. PEC’s recently reported FY Jun11 earnings were slightly below expectations due to weaker performance at its associates. However, core earnings and operating margins have remained firm. This is expected to be maintained going forward, partially through its $300m orderbook. Expansion plans afoot. Following its IPO in 2009, the company has yet to fully deploy its cash raised of $26m and is looking for more acquisitions. It has announced plans to expand beyond the oil and gas sector into infrastructure and energy‐related facilities. It also recently established a subsidiary in Myanmar.
Recent development: Despite the weak environment, PEC continues to secure new contracts, the most recent being a five‐year maintenance contract for ExxonMobil’s Singapore facilities. It has also secured $45m worth of project works recently to push its Valuations attractive, sentiment not. PEC’s orderbook (ex‐maintenance) to over $300m. share price has lost 31% of its value since the beginning of the year. It currently trades at just Key ratios… 6x consensus forward earnings. The company Price‐to‐earnings: 6.1x Price‐to‐NTA: 1.0x has $159m in cash and practically no debt Dividend per share / yield: 3.0cts / 3.8% whatsoever. This represents some 62 cents per Net cash: $159m share, or 79% of its share price. Stripping out the Net cash as % of market cap: 79% cash from its capitalisation, PEC’s forward earnings multiple is just 2.7x. Everything else… Share price Issued shares (m) Market cap (S$m) Free float (%) Recent fundraising Financial YE Major shareholders YTD change 52‐wk price range Source: Company data
S$0.785 255.2 200.3 33.7 Nil 30 June Management – 58.7% ‐31.2% S$0.735‐1.380
Ripe for a rebound? We expect this stock to continue to be exposed to negative sentiment due to the cyclical nature of the industry that it operates in. However, given its relatively stable earnings backed by a decent orderbook and cash‐backed share price, there is potential for a major rebound for PEC should the market recover. Consensus estimates peg fair value at between $0.90 and $1.36 per share.
Summary Financials Year End Jun 30 Sales (S$ m) Pre‐tax (S$ m) Net profit (S$ m) EPS (S cts) EPS growth (%) PER (x) Yield (%)
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2010 467.3 57.2 44.3 17.4 ‐ 4.5 5.1
2011 406.8 43.7 31.7 12.8 ‐26 6.1 3.8
2012F* 465.6 48.6 36.4 14.4 12.5 5.4 4.4
2013F* 440.3 42.5 32.3 12.8 ‐11.1 6.1 3.8
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