Next Better Player

Margin of Safety suggested initiating a position in Lian Beng Group (LBG) in February 2012 at S$0.39 per share. LBG has since had a good run to S$0.515 (close of 11 May 2013). Whilst it is inexpensive from a PER perspective, it is now at a premium to its NAV of S$0.47 per share.

Looking ahead, LBG's recurring income will increase as its workers dormitory at Mandai fills up and it could still surprise with more construction contracts win. What we are uncomfortable about is its stakes in the property projects.  Whilst small by our sum of parts estimate to LBG, sentiment could weigh on the counter as we expect the Singapore residential market to weaken considerably from here for several years. Word on the possible spin off of its engineering and machinery division on the Taiwan Exchange has also gone cold.

Having rode out a total return of 37% (c. 32% capital gain + 5% dividend yield) in 15 months, we recommend switching into other construction counters to ride the development boom in Singapore.