Centurion Corp - Old Friend, New Substantial Shareholder

CENT’s controlling shareholders have pared down their stake by 10% to 55.4% via a private placement of 80m shares at SGD0.57 each. LBG will be a strategic substantial shareholder (5%), while the remaining 42m shares will be taken up by private investors. This earningsneutral move will benefit CENT, and we expect more tie-ups between the two companies for future projects. Maintain BUY, with a TP of SGD0.82.

No new shares issued; fundamentals unchanged. Centurion Corp (CENT)’s EPS and shareholder base will be unaffected by this placement, as no new shares will be issued. Its fundamentals are expected to remain intact, with no change in expansion plans and earnings. CENT’s controlling shareholders, Centurion Properties Pte Ltd and Mr David Loh, have also indicated that they have no intention to sell or place out new shares for the next 18 months.

Expect more tie-ups with LBG. With the placement, Lian Beng (LBG SP, BUY, TP: SGD0.70) will be a substantial shareholder with a 5% stake. LBG is no stranger to CENT, since both companies have closely collaborated on

Joint Venture - Lian Beng, KSH Holdings

Lian Beng ($0.575, up 0.5 ct) together with KSH Holdings ($0.45, down 0.5 ct) and Heeton Holdings ($0.65, up 0.5 ct) announced that their jointly-owned associated company, Imperial South East Asia Investment Pte Ltd (ISEA) has entered into a joint venture agreement with Lok Oknha Sear Rithy, an unrelated Cambodian national for the purposes of an investment in Cambodia.

Under this agreement, the parties will establish a company called New Global Imperial Investment Co Ltd, which are jointly owned by ISEA (49%) and Sear Rithy (51%). The principal activity of New Global will be real estate development and investment holding in Cambodia.

Lian Beng goss margins dip due to revenue mix

1QFY14 profit down 31% YoY
Lian Beng announced 1QFY14 (ended 31 Aug 2013) PATMI of S$7.3m – down 30.9% YoY – mostly due to increased selling and marketing expenses incurred at launched projects (Spottiswoode Suites, The Midtown, Newest, KAP Residences and Eco-tech@Sunview) and the cessation of tenant leases at Hougang Plaza which was demolished for redevelopment. We also note the relatively new dormitory business contributed an estimated S$1.3m - S$1.4m in attributable net profits over the quarter.

Falling gross margins from shifting revenue mix
Topline for 1QFY14 came in 44.2% higher YoY at S$163.5m due to higher contributions from the construction and property development businesses as well as the ready-mixed concrete division. Due to a shift in revenue mix with a heavier percentage contribution from the construction segment, however, overall gross margins continue to dip – falling from 14.1% in 1QFY13 to 12.2% in 1QFY14.

Expect profit recognition from M-space in 2Q-3QFY14
Looking forward to 2Q-3QFY14, we expect profit contributions from the fully sold

Lian Beng Group S$117m contract

Lian Beng Group: S$117m contract win boosts order book to S$664m

Lian Beng Group has secured a S$117m contract for the construction of Skies Miltonia, a condominium development of TG Master Pte Ltd, at the junction of Yishun Avenue 1 and Miltonia Close. The project involves the construction of eight 13-storey residential blocks with penthouse and one 3- storey residential block, totalling 420 units, as well as basement car park, swimming pool, communal facilities and shops. Construction is due to start next month and will take about 33 months to complete. The new contract strengthens the group’s order book to S$664m as at 18 Feb 2013, with projects lasting through FY2016.

We are keeping Lian Beng UNDER REVIEW pending a change in analyst.

Lian Beng has proposed to spin off two subsidiaries

Catalyst from Taiwan. We estimate that the spin-off and listing of Lian Beng’s subsidiaries in Taiwan could propel its valuation from $0.62 to $0.71. To recap, Lian Beng has proposed to spin off two subsidiaries (one in the engineering and leasing of construction machinery business, the other in the concrete manufacturing business) and list them on the Taiwan Stock Exchange. The proposal received shareholder approval this month. We expect Lian Beng to raise about $29m from the expected sale of 30% stake in the subsidiaries, based on a PER valuation of 11.5x and FY12 forecast earnings of $9.3m. If all goes well, we expect the listing to take place by end-2Q12.

More cash than ever, now at $185m. We expect Lian Beng to return some capital to shareholders in the form of a special dividend, which it can well afford. An additional one cent per share of special dividend works out to just $5.3m cash and will translate to an incremental yield of 2.6% on top of the existing forecast yield of 4.6%. We believe a special dividend of up to 1.6 cents per share is possible, based on its $185m cash less its committed capital for property developments, for a total dividend of 3.4 cents per share, or 8.7% yield.

Lian Beng Group earnings on track

Lian Beng Group’s (LBG) - TP S$0.71

2QFY12 earnings were in-line with our estimates, coming in at S$11m, easing 5.2% YoY on the back of lower construction work recognised. LBG is set to ride on Singapore's current building boom and its ventures in private residential and industrial developments will help boost its bottom line. LBG’s net cash per share of 15.6S¢ (1QFY12: 14.2S¢) would be invested into its property business. Maintain BUY with a TP of S$0.71, based on a target P/E of 7x FY12 earnings.

Earnings in line with expectations. 2QFY12 earnings dipped 5.2% YoY to S$11m, mainly on the back of a 25.7% YoY decline in revenue. While there was a pickup in ready-mix concrete and property development segments, it was enough to make up for the drop in construction work. The impact of the decline in revenue to earnings was largely mitigated by

Lian Beng another new addition for development business

Fair Value - S$0.55

Lian Beng (LBG) recently announced that, through its 50% owned JV, Spottiswoode Development Ltd., it has acquired the site of Dragon Mansion, situated at Blk 14, Spottiswoode Park Road for S$130m. The freehold site has a plot ratio of 2.8 and can potentially be redeveloped into a 36-storey residential development with potential gross floor area (GFA) of 118,943 sqft (including 10% bonus balcony areas). At the stated purchase price, land cost, based on total potential GFA, amounts to c.S$1093 psf. Given the site's freehold status, its prime location near Tanjong Pagar, and the fact other projects at the Spottiswoode area have fetched selling prices around S$2000 psf, we feel the acquisition cost is not excessive.

Continuing search for attractive opportunities. Along with Midlink Plaza, LBG has already deployed around S$260m during the past couple of months for approx. 247,019 sqft of development area (128,076 sqft of commercial area and 118,943 sqft of residential area). Based on our dialogue with management, we found that the group is undertaking these developments partly due to the receipt of returns from OLA Residences and Kovan Residences and also because they believed these sites were priced appropriately and represented good investment opportunities. The management also stressed that while the group will keep a lookout for development opportunities, construction will remain the focus of the group. We believe these developments are positives for LBG, as both are good locations and offer LBG chances to add construction projects to their order books.

Mandai Industrial development selling well. LBG launched the 55%- owned Mandai Industrial development only as recently as the 4Q of CY11 and to date, more than 90% of the development has already been sold. We believe this partly reflects the demand of industrial space but it is also testament to LBG's acumen of investing in property developments. We believe that LBG can also execute its latest commercial and residential developments well.

Impacts will mostly be felt after FY12. Most of the financial impacts of these latest land acquisitions will only be felt after FY12. After speaking to the management, we update our assumptions for strong sales from Mandai Industrial and factor in the additions of these new development resources. This raises our earnings estimates for FY12 and FY13 by c.8% and 17% respectively. Keeping our P/E ratio peg of 5x, this raises our fair value estimate to S$0.55 from S$0.51 previously. Maintain BUY rating

Lian Beng Group latest acquisition at Spottiswoode

OCBC - fair value S$0.51

Lian Beng Group Ltd (LBG) announced that it has entered into a conditional contract (through its 50% owned JV company, Spottiswoode Development) for the collective purchase of the "Dragon Mansion" at Blk 14, Spottiswoode Park Road for S$130m. The residential site has land area of 38,618 sqft, with a plot ratio of 2.8 and can be built up to 36 storeys. The acquisition will be financed by internal funds and/or bank borrowings. This development venture will not have any material impacts on the group's earnings for the current financial year ending 31 May 2012. However, we will be speaking with management to get more insights into its plan for the site and will review our earnings estimates later. Meantime, we maintain our BUY rating and fair value estimate of S$0.51.


DMG - TP of S$0.71

The news: Together with Centurion Properties Pte Ltd, Lian Beng which has a 50% stake in the joint venture, is acquiring “Dragon Mansion” at Blk 14 Spottiswoode Park Road for S$130m. The land area is 38,618 sqf and has a gross plot ratio of 2.8, implying a potential gross floor area of 118,943 sqf (including 10% bonus gross floor area for balconies). Our thoughts: We estimate breakeven cost for this project to be ~S$1,500 psf. Assuming the current selling prices of property in the project’s vicinity continues to hold up at ~S$2,100 psf, this implies a potential profit of ~S$600 psf or ~S$36m for Lian Beng. With a strong order book of S$761m and demand for construction services to remain sustained, on the back of public infrastructure, public housing and private property projects being rolled out, we maintain our BUY recommendation on the stock and TP of S$0.71, based on 7x FY12 earnings.


AM Fraser

Lian Beng - Tie-up wins Dragon Mansion bid A Joint venture between Lian Beng Group and Centurion Properties has clinched the freehold Dragon Mansion through a collective sale for $130mil, which works out to $1,202 psf per plot ratio. No development charge is payable.