PhillipCapital research analyst Vivian Ye sees encouraging signs for Lian Beng Group despite the “challenging” construction industry.
In a Dec 3 unrated research report, Ye highlights that Lian Beng’s construction order book remains strong at $1.4 billion, which is expected to support construction activities until FY2026 ending May.
She is also positive on the diversified nature of its portfolio, which she says has cushioned the negative impact of the headwinds in the construction industry on Lian Beng’s bottom line. The group operates four main segments - construction, property development, investment holdings and dormitory.
“With the property market booming during the pandemic, the property development, dormitory and investment holding segments contributed 94% to profit before tax in FY2021, even though they make up only 17% of FY2021 revenue,” Ye notes.
Looking ahead, Ye anticipates a further recovery in the construction sector, underpinned by public sector projects such as public housing and infrastructure works. As of September, the value of construction contracts awarded has increased 36.7% y-o-y to $21.7 billion.
Ye also highlights that Lian Beng has maintained its dividend payouts throughout the challenging environment. “Dividend payout ratios averaged 21% over the past five financial years, and were 17.4% and 19.2% in FY2020 and FY2021 respectively, translating to dividend yields of 2%,” she says.
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While upbeat on the group’s prospects, Ye also cautions on key risks that may lie ahead. This includes continued headwinds with regards to manpower shortages and deployment challenges in the construction industry. Ye notes that another potential risk may be new regulations to cool the property market, which would impact Lian Beng’s other segments.
Shares in Lian Beng closed flat at 51.5 cents on Dec 6.
