A steal at EV/EBITDA at less than 1x?
Lian Beng Group is a A1 grade general building and A2 grade civil engineering contractor listed on the Singapore Exchange. Its A1 certification implies that it is eligible to tender for contracts of all sizes in Singapore.
In recent years, Lian Beng had focused on private residential projects. In November 2011, it turned its sights back on the government market and won a S$13 million contract from the HDB. The contract in Tampines is expected to be completed by September 2013.
With 25,000 BTO flats which HDB has committed to pushing out in the next 12 months, we expect Lian Beng to continue to score its share of contract wins as the Group has over thirty years experience in building construction.
Competition in the sector is fierce but the firm managed an impressive net profit margin of 9.6% for FY2011. Its impressive order book which stands at S$772 million should keep the firm busy until 2014.
Lian Beng is aware of the need to build up a recurring income stream to cushion the volatility of contract work. Hence, it teamed up with Centurion to develop a foreign workers dormitory in Mandai. We project that the dormitory would be completed by June 2012 and can generate approximately S$11 million in rental income annually.
Valuation for the firm is very compelling. At S$0.39 per share, Lian Beng is trading at its book value despite boasting an impressive return of equity of 25%. On an EV/EBITDA basis, Lian Beng is trading at approximately 2x (FY2011) and 0.7x (FY2012F)!
About 44% of its market capitalization is net cash which stands at S$83 million. Hence, Lian Beng should have no issue paying out about paying out another 1.6 cents in dividends for every share at the end of FY2012. Hence, we are confident of a base case dividend of 4.1%.
Management which owns 25% of the firm is keen to unlock value for shareholders via a listing of ready mix concrete and engineering business on the Taiwan Stock Exchange. The exercise should release more cash back to Lian Beng and hopefully catalyze the stock to greater heights.