Ley Choon Group, a Catalist-listed provider of underground utilities and roadworks services, is attracting investor attention as it emerges from financial restructuring and capitalizes on a recovering construction sector.
The company announced on Jan 15 that four subsidiaries secured contracts worth S$131.5 million for underground utility services and road reinstatement works. These projects, expected to conclude within 24 to 36 months, will boost its order book, which stood at S$220.1 million as of November 2024.
Strong Financial Recovery Fuels Optimism
After nearly a decade of financial struggles, Ley Choon’s recent performance reflects its turnaround:
- Revenue Growth: Revenue rose by 2.5% year-on-year to S$64.4 million for the half-year ended September.
- Profit Surge: Earnings jumped 35.9% to S$7.3 million, largely due to a 74.2% reduction in finance costs.
- Debt-Free Status: The company exited its debt restructuring program in March 2024, clearing its loans and leaving it debt-free with a cash reserve of S$3.5 million.
This financial stability allowed Ley Choon to reward shareholders with its first dividend since 2014—S$0.0027 per share, translating to a 5.5% yield based on its Jan 21 closing price of S$0.049. However, the company has not committed to a fixed dividend policy, citing its dependency on financial performance and operational needs.
Sector Opportunities and Robust Margins
Ley Choon’s profitability continues to improve, with its net profit margin climbing to 11.4% for the half-year ended September, up from 8.6% a year earlier. The company primarily serves government clients, reducing credit risks.
Executive Chairman and CEO Toh Choo Huat has expressed confidence in Singapore’s underground utility infrastructure sector, projecting favorable conditions in the mid-term.
The newly secured contracts are expected to progressively contribute to the company’s financial performance, reinforcing its standing as a key player in the recovering construction industry.
Challenges to Consider
While Ley Choon’s outlook appears promising, investors should weigh certain factors:
- Valuation Concerns: Ley Choon’s price-to-book ratio of 1.2 and price-to-earnings ratio of 5.86 are on the higher side compared to peers.
- Leadership Dynamics: The Toh family plays a significant role in the company, with CEO Toh Choo Huat and three brothers listed as substantial shareholders and advisers. While this reflects familial commitment, it may raise governance questions.
Bright Prospects Amid Recovery
Ley Choon’s turnaround comes as the battered construction sector rebounds post-pandemic, offering potential growth opportunities. Despite challenges, the group’s financial restructuring, solid government client base, and improved profitability make it a contender for investors seeking exposure to Singapore’s infrastructure sector.
As the industry gains momentum, Ley Choon stands out as a company poised to ride the upturn. For investors, it might just be the right time to dig into this emerging gem.
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