Thursday, July 31, 2008
Downgrades on Lian Beng
Westcomb downgrades Lian Beng to Hold from Buy, cuts target price to $0.255 from $0.83 based on sum-of-parts valuation. Lowers FY09-10 earnings forecasts 65%-75% to reflect reduced margins due to rising construction costs, fewer contracts given industry-wide delay in property launches, absence of contributions from group's property development business. Says fiscal FY08 earnings of $11.9 million 50% below Westcomb's forecast.
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Lian Beng rose on strong fiscal FY08 earnings, higher dividend payout, which translates to 21% yield based on Mon's closing price. Construction group's ability to boost profit margin (15.0% vs 7.6% year earlier) amid rising costs also positive for investor sentiment.
"Cost escalations of raw materials are largely buffered as it would lock in forward prices with their suppliers," says Kim Eng, which has Buy call. But cuts target to $0.57 from $0.68 after lowering FY09-10 earnings forecasts to reflect rising manpower costs.
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