Lian Beng Group Ltd – Navigating a tough construction sector December 3, 2021 1250

  • Lian Beng’s order book for the construction segment remains strong at S$1.4bn, expected to support construction activities until FY26.
  • YTD September 2021, the value of industry construction contracts awarded has increased 36.7% to S$21.7bn.
  • Diversified portfolio has cushioned the negative impact of the challenging construction industry on the bottom line.

Key Highlights

  1. Strong order book of S$1.4bn. Lian Beng is involved in a diversified portfolio of residential, industrial and commercial properties and civil engineering projects as the main contractor. Even though the Covid-19 pandemic has slowed down the construction sector in Singapore, its current construction order book of S$1.4bn should support construction activities until FY26. In 2021, Lian Beng announced two contracts, worth S$249mn in total, for the construction of residential developments.
  2. Construction sector expected to grow to S$23bn-28bn in 2021. The construction segment has been the main revenue contributor, at 83.1% for FY21. According to the Building and Construction Authority (BCA), construction demand has been recovering over 2021, with further recovery expected as construction activities resume. The main driver is expected to be the public sector, which is anticipated to contribute about 65%. This is supported by anticipated stronger demand for public housing and infrastructure projects. YTD September 2021, the value of construction contracts awarded has increased 36.7% YoY to S$21.7bn.
  3. Diversified business segments. Lian Beng’s diversified business segments have managed to cushion the negative impact of lower construction activities on its bottom line. With the property market booming during the pandemic, the property development, dormitory and investment holding segments contributed 94% to profit before tax in FY21, even though they make up only 17% of FY21 revenue.
  4. Leveraging technical capabilities to increase efficiency. Lian Beng uses various technologies, including incorporating Prefabricated Prefinished Volumetric Construction (PPVC). This helps to raise productivity, improve site safety and minimise the impact of construction activities on the environment.
  5. Consistent dividend payments. Lian Beng has maintained its dividend payouts, even with the challenging environment as a result of the pandemic. Dividend payout ratios averaged 21% over the past five financial years, and were 17.4% and 19.2% in FY20 and FY21 respectively, translating to dividend yields of 2%.

REVENUE

Revenue comes from four main business segments: construction, property development, investment holding and dormitory.

Construction. Lian Beng’s construction segment is in the business of building a diversified portfolio of residential, industrial and commercial properties and civil engineering projects as the main contractor. It also engages in other construction-related activities such as the provision of scaffolding and engineering services, sale of ready-mix concrete, reinforcement bar fabrication and leasing of construction machinery.

The construction sector in Singapore has experienced a slowdown since April 2020 due to various measures implemented by the Singapore government to contain the outbreak of Covid-19. Construction activities are resuming at a slow pace amid a manpower shortage arising from tighter border restrictions, disruptions in manpower deployment and additional safe management measures implemented at the worksites.

As of 18 October 2021, Lian Beng’s construction order book stands at S$1.4bn, which it will progressively deliver till FY26.

Property development. Revenue from SLB Development (SLB SP, Not rated), which is Lian Beng’s property development arm, is fully recognised in the income statement. It is 77.56% owned by LBG. SLB is involved in the development and sale of properties, including residential, commercial and industrial, and fund management services and investment in funds managed by fund managers through SLB.

Revenue has remained largely stable from FY18 to FY21, and this segment has been a pillar of profitability during the pandemic.

Dormitory. Revenue is recognised through the rental of dormitory units and provision of dormitory accommodation services. Lower revenue in FY21 was mainly due to the rental relief granted to tenants and the lower occupancy in Lian Beng’s dormitory business.

Investment holding. This segment holds a portfolio of commercial, industrial and residential properties in Singapore, which provides LBG with stable recurring rental income and also long-term capital appreciation and dividend yields.

In FY21, LBG reported lower revenue of S$514.5mn, down 7.5%, mainly due to lower revenue from the construction segment (Figure 3). Revenue from construction in FY21 declined 7.2% to S$427.5mn, due to the reasons mentioned.

 

OTHER INCOME

Other operating income increased mainly due to government grants consisting of the Jobs Support Scheme, property tax rebate, foreign worker levy waiver and rebate.

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