Lian Beng Group Ltd. - Will it take 35 years to recover the investment in Prudential Tower?

14/8/2014 – Lian Beng Group Ltd says it will continue to focus on its core business of construction.

As a result, the BCA Grade A1 construction company says it will actively tender for new projects to 'generate sustainable revenue and profitability'.

In May, Lian Beng Group's 32%-owned associate, Epic Land Pte Ltd, agreed to buy a 92.8% stake in Prudential Tower from Keppel REIT for S$512 mln.

While the deal is expected to close next month, we wonder why Lian Beng Group is not seeking its shareholders' approval.

But before we discuss that, let's look at the company's recently announced earnings for FY14:

Revenue: +49.1% to S$753.9 mln
Profit attributable to shareholders: +19.4% to S$87.1 mln
Fair value gain on investment properties: S$37.2 mln vs S$51 mln
Cash flow from operations: S$60.9 mln vs (S$26 mln)
Dividend: 2.25 cents per share vs 1.25 cents per share
Order book: S$1.2 bln as at July 23

Revenue was contributed by:

Lian Beng Group is hopeful of a greater revenue contribution from its dormitory business.

It also expects its recent investments in corporate bonds, quoted securities and properties to contribute to earnings.

According to page 8 of its earnings report, Lian Beng Group changed its accounting policy of measuring the 'investment properties' 'from cost method to fair value model'.

As a result, its audited financial statements for FY12 and FY13 were restated to incorporate the change in accounting policy.

On May 31, Suntec Real Estate Consultants Pte Ltd and Knight Frank Pte Ltd valued its 'investment properties' as follows:

Curiously, Lian Beng Group didn't publish the valuation details for the previous years, based on which the audited financials for FY12 and FY13 were restated.

The restatement of financial statements boosted the value of its FY12 and FY13 balance sheets by 4% and 9.4% respectively.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. How did it estimate the fair value of its 'investment properties' on June 1, 2012 and on May 31 last year?

We wonder that because, in its announcement, Lian Beng Group didn't mention the valuation details of the 'investment properties' on June 1, 2012 and on May 31 last year.

Question

2. Why did it record 'investment properties' at S$1.8 mln less than their independent valuation on May 31?

The independent valuation of its 'investment properties' adds up to S$264.2 mln on May 31.

But Lian Beng Group has recorded the 'investment properties' at S$262.4 mln in its balance sheet on page 4 of the earnings report.

Total number of questions in the full story: 10)

We have invited the company (lbg@lianbeng.sg, yibing@financialpr.com.sg, el@financialpr.com.sg) to an on-camera interview, and/or to reply to our questions in writing.

At the time of publication we have not received a reply (which is why you are seeing this message).

We will update this report if we do.

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