SINGAPORE (Apr 10): CIMB likes Ley Choon Group Holdings, the underground utilities infrastructure service provider, for its stable repeat customer base and reputation as a market leader in water pipe laying.

At the share price of 3.5 cents, the stock is trading at 5.8 times FY17 price-to-earnings (P/E) and 1.3 times FY17 price-to-book value (P/BV).

In an unrated report on Monday, analyst Colin Tan highlights the company’s customer base of mainly Singapore government-linked statutory boards and companies, such as Public Utilities Board (PUB), Changi Airport Group (CAG) and PowerGas.

In particular, Tan notes that Ley Choon’s management is optimistic on securing more water pipe contracts from PUB this year, although it intends to be more selective on bidding for tenders to ensure decent profit margins amid stiff competition.

<hr/><a href="https://www.theedgesingapore.com/ley-choon-wins-104-mil-pub-contract">See: Ley Choon wins $10.4 mil PUB contract</a><hr/>

“Water pipelines in Singapore are generally categorised into two types: the bigger transmission pipes and the smaller distribution pipelines to households. Ley Choon believes it has the leading market share of c.50% in the supply and installation of water transmission pipes business in Singapore, while its market share is likely less than c.60% for the water distribution pipes segment, which is more competitive,” says Tan.

The group’s core business comprises sewer pipeline rehabilitation, road and airfield construction and maintenance, asphalt premix production and construction waste recycling.

Pipe and road segments contributed 92% of the group’s total revenue for FY17, with the remaining revenue attributed to the Construction Materials segment.

Ley Choon is presently in the midst of deleveraging with a total debt amounting to $59.6 million as at end-2017.

As part of its debt restructuring agreement that includes a cash sweep mechanism which it undertook in 2016, all operating cash earned above $8 million will be used for loan repayments. The group is required to make a lump sum repayment for the total loan amount on Mar 2021.

<hr/><a href="https://www.theedgesingapore.com/ley-choon-posts-962-fall-3q-earnings-03-mil-absence-one-gain">See: Ley Choon posts 96.2% fall in 3Q earnings to $0.3 mil on absence of one-off gain</a><hr/>

As at 12:44pm, shares in Ley Choon are trading flat at 3.5 cents.

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