Lum Chang Holdings

Bloomberg: LCH SP Reuters: LUCS.SI Price: SGD0.27

Pr ice 30 Day Moving Aver age

Date: September 6, 2011

Pr ice ( SGD)
0.35 0.30 0.25

GICS: Industrials/Construction & Engineering Business Summary: Founded since the 1940s, and listed
on the main board of SGX on Dec. 28, 1984, Lum Chang Holdings (LCH) is a key player in the Singapore construction industry. The group provides services in general construction, property development and property management.

0.20 0.15 0.10

Country of Incorporation: Singapore Head Office Location: 1 Selegie Road, #06-02, PoMo,
Singapore 188306
Vol ume

Vol ('000)
6,000 4,000 2,000

Place of Operations: Singapore Website: www.lumchang.com.sg IR Contact: Lim, Dawn | dawnlim@lcdev.com.sg | +656266 2222
Sep 08 Nov 08 Jan 09 Mar 09 Jun 09 Aug 09 Oct 09 Dec 09 Feb 10 May 10 Jul 10 Sep 10 Nov 10 Jan 11 Apr 11 Jun 11 Aug 11

Analyst: Seu Yee Lau

Investment Highlights
Founded in the 1940s, LCH is one of the key players in the construction industry in Singapore. The group has been involved in numerous large scale infrastructure and building projects and has amassed more than 150 projects worth over SGD7.4 bln since 1970. The group presently has an outstanding order book of about SGD1 bln lasting till 2015 which will underpin its near-term earnings. The group is also engaged in property development in Singapore and Malaysia as it believes it can leverage on its construction expertise. In Singapore, the group recently completed and sold all its Swettenham luxury bungalows. Its present property project, Esparina Residences, a JV with Frasers Centrepoint launched in September 2010, has sold almost all its units. In Malaysia, the group has high-end residential developments undertaken on a JV basis at Sungai Long (GDV: MYR791 mln) and Kemensah (GDV:MYR402 mln). Although LCHs earnings declined by 32% to SGD17.1 mln in FY11 (Jun) due to lower property income and the absence of any land sales, we expect net profit to rebound to grow by 17% in FY12. This is on the back of a pick-up of recognition of its construction projects and progress receipts from its property developments. Meanwhile, the midterm outlook looks positive with the strong pipeline of public contracts like the MRT and HDBs move to ramp up its supply of units. At the current share price, the stock offers an attractive dividend yield of about 7.4%.

Key Investment Risks

Sharp rise in labor material costs. An unexpected hike in subcontractor fees, workers levy and material prices (particularly steel) will put pressure on the groups profit margins. Project execution and cost overruns. Failure to account for project costs accurately at the tender stage and in managing ongoing project costs will adversely affect project viability and profitability. Shortage of skilled labor. This is an industry-wide problem which could result in project disruptions and delays with potential cost overruns. An unexpected downturn in the property market in Singapore and Malaysia will likely affect the groups property sales. On the other hand, if the real estate market continues its uptrend, further cooling measures may be imposed, which may temper sentiment and future sales. Forex. Given its overseas operations, LCH naturally faces a certain degree of currency risks i.e. MYR. Sharp foreign exchange fluctuations may impact margins.

Key Stock Statistics 52-week Share Price Range (SGD) Avg Vol - 12 months ('000 shares) Price Performance (%) - 1 month - 3 month - 12 month No. of Outstanding Shares (mln) Free Float (%) Market Cap (SGD mln) Enterprise Value (SGD mln) Major Shareholders (%) Beverian Holdings Lum Chang Investments Kwan Sung Lum, Raymond 16.3 15.8 2.7 0.25 - 0.35 184.2 0.0 -5.3 -14.3 380.0 0.6 102.6 143.5

Per Share Data FY Jun. Book Value (SG cents) Cash Flow (SG cents) Reported Earnings (SG cents) Dividend (SG cents) Payout Ratio (%) PER (x) P/Cash Flow (x) P/Book Value (x) Dividend Yield (%) ROE (%) Net Gearing (%)

2010
38.82 7.1 6.7 2.0 30.1 4.0 3.8 0.7 7.4 18.7 0.0

2011
39.05 4.9 4.5 2.0 44.3 6.0 5.5 0.7 7.4 11.6 0.0

2012E
42.32 5.7 5.3 2.0 37.9 5.1 4.7 0.6 7.4 13.0 0.0

2013E
45.88 6.1 5.6 2.0 36.0 4.9 4.4 0.6 7.4 12.6 0.0

All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
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Lum Chang Holdings

Bloomberg: LCH SP Reuters: LUCS.SI Price: SGD0.27 Date: September 6, 2011

Background
Founded as a sole proprietorship in the 1940s, LCH is a key player in the construction industry in Singapore. The groups services include general construction as well as property development and investment, both in Singapore and abroad. LCH was listed on the main board of SGX on Dec. 28, 1984. The group has business presence in Singapore and Malaysia. It possesses an A1 classification for both general building and civil engineering with the Building and Construction Authority of Singapore (BCA) which enables it to tender for public contracts of unlimited value. Over the years, LCH has received multiple awards from the BCA and has amassed more than 150 projects worth over SGD7.4 bln since 1970. LCH also plays an active role in improving its productivity by constantly upgrading its construction methods and work processes. In recognition of its efforts, the group was awarded two construction productivity awards by the BCA in May this year. The groups projects span across various industries, ranging from residential, commercial, industrial and institutional for both the private and public sectors. Some of its completed noteworthy projects in Singapore include: Institution: National University of Singapore and National Library; Civil and Infrastructure: Changi Water Reclamation Plant, Bugis & Lavender MRT stations, Circle Line (Contract 823 & 828); Commercial: 1, 3 and 5 Changi Business Park Crescent, Twenty Anson, Bugis Junction, UOB Plaza 1, Paragon, Causeway Point, AMK Hub; Residential: Yew Tee Residences, Valley Park Condominium, Compass Heights, Emerald Garden, The Cornwall, The Levelz; Hotel & Leisure: Singapore Marriott Hotel, InterContinental Singapore, Crowne Plaza Changi Airport, Sentosa Underwater World; Hospital: National University Hospital and Tan Tock Seng Hospital; and Industrial: Dril-Quip manufacturing facility, Asia Pacific Breweries, Corporation Place, Technopark@Chai Chee.

Board of Directors
Name Lum Kwan Sung, Raymond Lum Kok Seng, David Ee Hock Leong, Lawrence Sim Swee Yam, Peter Kenneth G. R. Maclennan Dr Lee Leng Ghee, Willie Source: Company data Title Executive Chairman Managing Director Lead Independent Director Non-Executive Independent Director Non-Executive Independent Director Non-Executive Independent Director Date of Appointment Sep. 1982 Sep. 1982 Nov. 2001 Nov. 2001 Nov. 2001 Feb. 2006

Board Independence
The board consists of six directors, of which four are independent directors. As noted in the annual report, Raymond Lum and David Lum, who hold the positions of Chairman and Managing Director respectively, are siblings and as such their roles are not clearly separated. Nevertheless, the board has established various committees that comprise a majority of independent directors, i.e. Audit Committee (four of four), Nominating Committee (three of four) and Remuneration Committee (four of four).

Key Management
Name Lum Kwan Sung, Raymond Lum Kok Seng, David Tan Wey Pin Title Executive Chairman Managing Director Managing Director of Lum Chang Building Contractors (LCBC), Head of Construction Director, Finance Director, Business Development Director, Property Development Date of Appointment Sep. 1982 Sep. 1985 Aug. 2010

Tony Fong Lum Wen Hong, Adrian Pang Sang Choi Source: Company data

Aug. 2010 Jul. 2006 Jul. 2010

LCH has an experienced management team led by its Executive Chairman Raymond Lum and his brother, the groups Managing Director, David Lum. Both have more than 30 years of industry experience and have been instrumental in steering the growth of LCH. Meanwhile, LCHs board members include directors who have extensive experience in various fields of management and operations. The largest direct shareholders of LCH are Beverian Holdings with a 16.3% stake and Lum Chang Investments (15.8%). Beverian Holdings and Lum Chang Investments are investment holding companies controlled by the Lum family.

Corporate Structure
Lum Chang Holdings

Construction 100% Lum Chang Asia Pacific 100% Lum Chang Building Contractors 20% FCL Compassvale

Property Development 51% 100% Venus Capital Corporation 100% Fabulous Ra nge 100%

Others

Kemensah Holdings

Lum Chang Corporation Lum Chang (Suzhou) Investments

100%

100% Nexus

100%

Glaxton Trading

100%

Lu m Chang Property Investment

Source: Company data

All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
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Lum Chang Holdings

Bloomberg: LCH SP Reuters: LUCS.SI Price: SGD0.27 Date: September 6, 2011

Key Subsidiaries & Associates

100%-owned Lum Chang Asia Pacific is an investment holding company 100%-owned Lum Chang Building Contractors is involved in building construction 20%-owned FCL Compassvale is a property development company 51%-owned Kemensah Holdings is an investment holding company 51%-owned Venus Capital Corporation is a property development company incorporated in Malaysia 51%-owned Fabulous Range is a property development company incorporated in Malaysia 100%-owned Nexus is a property development company which provides project management service 100%-owned Glaxton Trading is a property development company 100%-owned Lum Chang Corporation is an investment holding company 100%-owned Lum Chang (Suzhou) Investments is an investment holding company 100%-owned Lum Chang Property Investment is an investment holding company

FY11 Revenue Breakdown by Geographical regions

Asia (ex Singapore) 2.3%

Singapore 97.7%

Source: Company data

For FY11, of the reported segment profit before tax of SGD17.5 mln, contribution came solely from the construction division at SGD19.5 mln while its Property Development and Investment division and others incurred losses of SGD1.04 mln and SGD1 mln respectively. General Construction LCHs construction track record dates back to its founding and the group today ranks as one of the key construction players in Singapore. The group has handled numerous and diverse projects ranging from civil and infrastructure projects, luxury condominiums, hotels, offices as well as retail and commercial complexes in Singapore and abroad which include Malaysia, China and Mauritius. The group holds the highest A1 BCA grading and has completed over SGD7.4 bln worth of projects since 1970. LCH provides fully integrated services in the construction industry, offering a diverse range of services in design and build, management, engineering, upgrading and construction for civil, infrastructure and building projects in both the private and public sectors. The group is constructing a facility in its leasehold premise in Kranji where it will be used to store its construction cranes, drilling equipment, building materials and prefabricated construction materials. Since the start of 2011, LCH has secured about SGD450 mln in new contracts, bringing the total outstanding order book to about SGD1 bln, lasting till 2015. The groups recent win was the SGD152 mln contract to build a commercial development at Science Park Drive. The groups ongoing projects are listed in the table below:
Ongoing Key General Construction Projects
Project Client Project Value (SGD Mln) 152.2 297.7 119.4 504.5 38.8 1,113 Target Completion Date Aug 2015 Sep 2013 Apr 2013 July 2015 Apr 2012

Business Segments / Key Revenue Streams

LCHs business can be organized into two main categories: Construction and Property Development and Investment, with Construction accounting for the lions share of the group revenue (94%) and the Property division accounting for the balance of 6% in FY11. The composition of the revenue was significantly different from FY10 where construction accounted for only 51% and property division making up the bulk of the balance.
FY11 Revenue Segmental Analysis
Property Development & Investment 6%

Construction 94%

Commercial Development at Science Park Drive Office Development North Buona Vista at

Ascendas Land Ho Bee (One North) FCL Compassvale LTA Premium Automobiles

Source: Company data

Esparina Residences at Buangkok MRT Downtown Stage 2 (C912) Audi Terminal Total Source: Company data Line

On a geographical basis, LCH has benefited from the flurry of construction activities at home as Singapore remains the groups key market contributor. Singapore operations contributed to about 98% of group revenue in 2011.

All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
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Lum Chang Holdings

Bloomberg: LCH SP Reuters: LUCS.SI Price: SGD0.27
Twin Palms, Kemensah Twin Palms Kemensah is located at Kemensah, Ulu Kelang, Gombak district off the Middle Ring Road II Highway, close to the Kuala Lumpur City Centre. Set on the slopes at the foothills of Klang Gates Ulu Klang, this 30-acre freehold gated development features 128 luxury bungalows that will be developed in three phases. The development has an estimated GDV of MYR402 mln. The first phase of the development comprises 42 three-story luxury bungalows. Of these, 25 units were opened for sale in 2010 and seven units have been sold to date. The completion of the development is expected to be in 2016. Property Management LCH presently derives rental income from its ground floor shop unit at 8 Kim Tian Road. The group also has a minority stake in Twenty Anson, the 20-story Grade A office block located at the junction of Anson Road and Gopeng Street. The group purchased two properties in July and September 2010 at 12 & 14 Kung Chong Road with the intention of redevelopment to house the groups corporate offices and for lease to related companies and external parties. The building is expected to be completed end-2012.

Date: September 6, 2011

LCH is presently bidding close to SGD1 bln worth of new projects which include public infrastructure works such as the MRT lines, institutional, commercial and residential projects. Its target annual order book replenishment rate is about SGD200 mln to SGD300 mln. The construction division recorded an 82% increase in revenue in FY11 mainly due to the commencement of revenue recognition of the SGD504.5 mln MRT project at Bukit Panjang (C912) at 4QFY11. Property Development and Management LCH has moved from humble beginnings of small landed housing to upmarket condominiums and luxury bungalows in Singapore and Malaysia. In Singapore, LCHs portfolio includes addresses in prime residential areas such as the Good Class Bungalows in Swettenham Road, 6 Ardmore Park and 7 Draycott Drive and Emerald Garden, a condominium in the vicinity of Raffles Place. In Malaysia, LCH has formed JVs with strategic partners to develop a couple of sizeable residential projects in Kuala Lumpur as provided below. The groups present residential development projects on hand in Singapore and Malaysia include the following: Esparina Residences, Singapore Esparina Residences, an executive condominium comprising nine blocks with over 500 residential units is located at Buangkok Drive/Compassvale Bow, near Buangkok MRT station. It is undertaken in collaboration with Frasers Centrepoints, with Frasers Centrepoints holding an 80% stake and LCH holding the remaining 20% stake. LCH is also involved in the construction of the project for a contract sum of SGD119.4 mln. Launched in September 2010, Esparina Residences has a net saleable area of about 609,801 sq ft. Almost all the units have been sold, at an average price of SGD740 per sq ft. We understand from management that about 10% of the progress revenue has been recognized in FY11 for this development targeted for completion in April 2013. Twin Palms Sungai Long, Malaysia Twin Palms Sungai Long is located at Sungai Long, Cheras, Ulu Langat district beside the SILK highway, with easy access from the Sungai Besi and Besraya highways. This 126-acre freehold residential development comprises 201 bungalows, 308 semidetached villas and 66 units of superlink homes. To be rolled out in nine phases, this development consists of a WiFi-enabled clubhouse to a 500 meter long linear park, exercise stations, a playground with import-quality equipment, a childrens playroom, spa, saunas and Jacuzzi rooms. The entire development has an estimated GDV of MYR791 mln. LCH presently owns 51% stake in Fabulous. The remaining 49% is owned by its JV partner, Standard Chartered Private Equity (SCPEL). The JV with SCPEL enables the group to leverage on the strengths of SCPEL and also access to the international network of Standard Chartered Bank. To date, three phases have been launched, comprising 66 units of superlink homes, 156 semi-detached villas and 43 bungalows. All the 66 units of superlink homes have been sold. Meanwhile, 126 semidetached villas (about 81%) and 25 bungalows (about 58%) have been sold. The remaining semi-detached villas and bungalows are currently expected to be launched over the remaining phases by 2016 when final completion of the entire development is expected.

Industry Landscape
Singapore Construction Sector

Singapores construction sector grew by 1.5% YoY in 2Q11, following a growth of 2.4% in 1Q11 (Source: MTI). In 2010, the sector grew at a more moderate pace of 6.1%, after posting high growths of 17.1% and 20.1% in 2009 and 2008, respectively. The performance of the sector in 2010 was primarily driven by sustained public works and recovery in the residential property segment in tandem with improved market sentiment. Nonetheless, the industrys growth has moderated due to completion of the two integrated resorts. For 2011, the BCA has forecasted public sector demand to take the lead at SGD13 bln to SGD17 bln, up from SGD8.4 bln last year. With the ongoing progress of the rapid transit system (RTS) and the ramping up of supply of HDBs flats to 25,000 units this year, we believe the total public contracts will likely fall closer to the higher end of the forecast. The private sector demand however, is projected by the BCA to fall between SGD11 bln to SGD13 bln in 2011, from SGD18.7 bln recorded last year. In the longer term, the sector will continue to benefit from the continuous rollout of public sector works. The government will be spending SGD60 bln over the next 10 years on improvements to the rail network to ease congestion and plans to double the RTS network by 2020 from 138 km presently. The new lines are the Downtown line (DTL), the Thomson line (TSL), the Eastern Region line (ERL) and further extensions.

All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
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Lum Chang Holdings

Bloomberg: LCH SP Reuters: LUCS.SI Price: SGD0.27 Date: September 6, 2011
Singapore RTS Projected Track Length (2010A-2020F)
300 250 RTS Track Len gth (km ) 200 150 100 50 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F +CCL 4-5 147 130 +CCL Ext +DTL 1 149 153 +NSL ext 154 +DTL 2 +Tuas Ext 178 171 +DTL3 199 +Thomson Line 226 226 +ERL 247

The PIC scheme was introduced last year to encourage firms to invest in six areas: automation, research and development, design, registration of intellectual property, acquisition of intellectual property rights and staff training. The PIC program was enhanced this year to allow firms to enjoy tax deductions of up to an unprecedented 400% on their spending in any of these areas, up from 250% previously. In addition, BCA will introduce a new constructability score, which grades builders on how labor-efficient their processes are. Growth years and construction demand in 2010 Following a prolonged downturn in the construction industry in Singapore, demand has been growing since 2004 (see graph below). The last few years have seen a renewed wave of soaring growth, led by a spike in private sector demand, with the two integrated resorts and an increase in residential and commercial projects. A high of SGD35.7 bln worth of contracts was awarded in 2008. According to the BCA, total construction demand declined in 2009 but picked up in 2010, rising by 20% to SGD27.1 mln on the back of stronger economic growth in Singapore. In particular, construction demand from the private sector rebounded and grew by 117% to SGD18.7 mln in 2010. As such, the private sector formed the bulk (69%) of the years overall construction demand.
Historical and Forecast Construction Demand (1995-2013)
40.0 35.0 30.0 25.0 SGD 'Bln 20.0 15.0 10.0 5.0 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E

Source: LTA

The Land Transport Authority (LTA) has also recently unveiled plans to build the 21-km North-South Expressway (NSE), Singapores 11th expressway. Details of the 15.9-km northern section of the NSE, from Admiralty Road West to Toa Payoh Rise were announced, while the 5.1km southern section will be firmed up and announced later. Works on the expressway, which will cost between SGD7 bln to SGD8 bln, are due to start in less than two years and completed by 2020. Other mega infrastructure projects include the SGD1.33 bln 35-hectare Sports Hub in Kallang, which is presently under construction after a two year delay due to the financial crisis. The stadium is slated to be ready in April 2014.
The Northern Section of the North-South Expressway

Total Contracts Forecast Total

Public Contracts Forecast. Public

Private Contracts Forecast Private

Source: BCA, CEIC

Note: Breakdown of private and public sector construction demand forecasts not provided in 2012 and 2013

Construction to enjoy sustained activities in the medium term

Source: LTA

The construction sector remains a key engine of economic growth, contributing about 4%-5% of Singapores GDP. The industry is estimated to employ about 394,000 people, or roughly 12.7% of the workforce in 2010 (Source: MoM). During the recent 2011 Budget, the government announced further increases on foreign worker levy as part of its carrot-and-stick approach to encourage firms to upgrade their existing building techniques and raise productivity levels. The levy increases will be phased in at six-monthly intervals, starting from January 2012 to July 2013. According to MOM, employers in the construction sector can expect an average increase in the monthly levy of SGD320 per work permit holder between now and July 2013. The carrot however, comes in the form of higher tax deductions through the Productivity and Innovation Credit (PIC) scheme.

For 2011, the BCA has recently revised its figures and has projected construction demand to reach between SGD24.0 bln and SGD30.0 bln, reflecting a sustained workload from 2010s SGD27.1 bln. Public sector demand is forecasted to take the lead, strengthening to between SGD13 bln and SGD17 bln and forming the bulk (56%) of the overall construction demand. The rebound is anticipated to mainly come from growth in public sector civil engineering demand led by Downtown MRT line Stage 3, the ramp up of new HDB build-to-order (BTO) flats and institutional demand (e.g. Institute of Technical Education (ITE)s third regional campus at Ang Mo Kio, development of Jurong General Hospital, redevelopment of Victoria Theatre and Victoria Concert Hall at Empress Place).

All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
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Lum Chang Holdings

Bloomberg: LCH SP Reuters: LUCS.SI Price: SGD0.27 Date: September 6, 2011
The private sector construction demand however, according to the BCA, is expected to decline from the preceding years level of SGD18.7 bln to between SGD11 bln and SGD13 bln in 2011. Private residential demand is projected to reduce to between SGD5.0 bln and SGD5.5 bln, from 2010s contracts of SGD8.7 bln amid a more cautious outlook after the introduction of a slew of government property cooling measures to curb property inflation and speculation. Private sector commercial demand however, is expected to remain stable at around SGD2.1 bln-SGD3.0 bln in 2011 backed by buoyant office space demand and a vibrant retail sector. Meanwhile, private industrial demand is also expected to sustain at around SGD3.0 bln-SGD3.5 bln in 2011, dominated mainly by the construction of high-specification and state-of-the-art buildings. For 2012 and 2013, BCA has forecasted annual construction demand to range between SGD21 bln-SGD28 bln p.a. Taking into consideration the level of construction activities taking place in the next few years, we expect steady replenishment of the order books of local construction companies.
Actual and Forecast Construction Demand (2010-2013)
2010A 2011F 2012-2013F (annual average) SGD bln Residential Commercial Industrial Institutional & others Civil Eng. Total Total (Public & Private) Source: BCA Public 2.8 0.2 1.0 Private 8.7 3.1 3.3 Public 4.4-5.8 0.1 0.1-0.3 Private 5.0-5.5 2.1-3.0 3.0-3.5 Public NA NA NA Private NA NA NA Source: CEIC, HDB

HDB Construction to Jump to Appease Rising Prices

20 0.0 18 0.0 16 0.0 14 0.0 Price Index Units Built 12 0.0 10 0.0 8 0 .0 6 0 .0 4 0 .0 2 0 .0 0.0
19 9 19 4 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 10

40 ,0 00 35 ,0 00 30 ,0 00 25 ,0 00 20 ,0 00 15 ,0 00 10 ,0 00 5,00 0 0

R es ale Price Index

HDBs C onstructed

Singapore Residential Property Segment

2.3 2.2 8.4

2.7 0.8 18.7

2.0-3.0 6.4-7.8 13.017.0

0.4-0.5 0.4-0.5 11.013.0

NA NA NA

NA NA NA

The recent URA released data show that some 1,954 private homes and executive condominiums (EC) were sold in July 2011. Excluding EC, 1,386 units were sold, up 17.3% MoM but down 10.8% YoY. Although the figures show a rebound in July after two months of decline, the outlook remains uncertain amid continued fears about a slowdown in the global economy. We expect weaker transactions in August given the traditionally slower Hungry Ghost month, coupled with the governments recent revision in the long-held unchanged income ceiling for home buyers of BTO flats and EC. Top selling projects in July include new developments with attractive location attributes - Skyline Residences (167 units @ SGD1,902 per sq ft), The Miltonia Residences (124 units@SGD871 per sq ft), Thomson Grand (108 units@SGD1,318 per sq ft) and Seastrand (116 units@SGD935 per sq ft),
Primary Private Residential Sales 2000 - July 2011

27.1

24.0-30.0

21.0-28.0

Meanwhile, the HDBs plan to boost and expedite development of new flats to appease rising demand bodes well for construction companies. HDB plans to offer a record 25,000 new BTO flats this year and next. This follows the recent aggressive moves to ramp up supply where a total of 16,000 new flats were launched last year. More notable is HDBs intention to start building flats in anticipation of demand - marking a significant shift away from its current system, where a project is built only after confirmed orders are garnered for 70% of the flats. From the chart below, this is a jump over 2003-2010 average building of about 7,000 units p.a. The government has also committed to keeping up the new pace of building next year.

1 8 ,0 0 0 1 6 ,0 0 0 1 4 ,0 0 0 1 2 ,0 0 0 1 0 ,0 0 0 8 ,0 0 0 6 ,0 0 0 4 ,0 0 0 2 ,0 0 0 0
5406

------- historical average

14811

16292

14688

11147 9485 8955 7189 5785 5156 4264

1189 1101 1386

1788 1575

1182 1386

Source: URA

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20 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 Ja 1 0 n F e 11 b M 11 ac Ap 1 1 r M 11 ay Ju 1 1 n Ju 1 1 ly 11

20

00

Lum Chang Holdings

Bloomberg: LCH SP Reuters: LUCS.SI Price: SGD0.27 Date: September 6, 2011
Meanwhile, 2Q URA data reflected a moderation in growth of the private housing sector. Private residential property index rose 2% QoQ in 2Q11, slower than the 2.2% in 1Q11. The rate of increase of private home buyers has been slowing since 4Q09, which is in line with the governments intent to achieve a soft landing to the market.
Property Price Index (Private Residential)
250

Minimum Occupation period for HDB resale flats raised from one to three years Clamp down on illegal subletting for HDB flats Aug. Raise the holding period for sellers stamp duty (SSD) to three years (from one year) Increase minimum cash payment to 10% (from 5%) of the valuation limit Reduce the loan-to-value (LTV) limit for housing loans to 70% (from 80%) 2011 Jan. Raise the holding period for SSD to four years (from three years) Raise the SSD rates to 16%, 12%, 8% and 4% for properties sold in the first, second, third and fourth year of purchase respectively Reduce the LTV to 60% (from 70%) for individuals with more than one housing loan Aug. Increase income ceiling for HDBs BTO flats to SGD10,000 (from SGD8,000) and EC to SGD12,000 (from SGD10,000)

200

150

100

50

Source: Standard and Poors Equity Research

0

Source: URA

The HDB index however, rose by 3.1% QoQ in 2Q11, higher than 1.6% in 1Q11 which could see the government forcing its hand on policies to provide affordable housing for its citizens. Data from real estate agencies also indicate that cash-over-valuation (COV) premiums have also increased to SGD32,000 in 2Q11 from SGD21,000 in 1Q11.
HDB Resale Price Index
2 0 0 .0 1 8 0 .0 1 6 0 .0 1 4 0 .0 1 2 0 .0 1 0 0 .0 8 0 .0 6 0 .0 4 0 .0 2 0 .0 0 .0

Looking ahead, given the post election pressures, policy uncertainties will remain. The government recently raised the income ceiling for HDBs BTO flats to SGD10,000 (from SGD8,000) and EC to SGD12,000 (from SGD10,000) which would likely subdue demand for the mass market segment. In addition, any further modification to slow down foreigner influx could potentially also affect demand in the mid term. For 2011, we believe that prices will remain relatively firm as the interest rate environment is still attractive, and buyers affordability is intact. In addition, developers generally have healthy balance sheets and little landbank. Most developers are still selectively augmenting existing landbank, favoring choice sites near main transport nodes. Though the high residential land supply coming on stream is likely to result in lower land prices, it may not translate to lower selling prices, which have thus far held relatively firm. Transaction volumes, nevertheless, will remain subdued as sentiment is likely to be affected by news of protracted debt problems in Europe, a waning U.S. economy and slower economic growth in Singapore. We project that about 12,000 to 13,000 private residential units will be sold in 2011, about 22% lower than 2010 levels as buyers turn more cautious.
Malaysian Residential Property Market Sector

1 Q 10 20 11

03

05

08

04

06

20

20

20

09

02

07

20

20

20

20

20

20

Source: CEIC

According to the National Property Information Center, the Malaysian property market reached new highs in 2010, with MYR107.4 bln (+11.4% YoY) worth of properties changing hands. The number of transactions also posted a double-digit improvement, growing 32.4% to 376,583. Property prices were also on the rise, with the All House Price Index climbing 8.9 points to 140.7 points. The sectors growth was primarily fueled by the combination of positive market sentiment, supportive government policies, attractive borrowing rates and low entry cost. More importantly, the residential properties affordability index remains healthy and, is still near the most affordable level in the past thirty years. Despite the recent hike in borrowing cost (average Base Lending Rate increased by 30 bps in May 2011) and the governments imposition of lending limits for the purchase of third properties (70% borrowing limit) onwards, the general outlook for the Malaysian property market remains positive and is expected to continue on its growth trend, albeit at a more measured pace. Moderate price appreciation is also expected in the medium term, after strong price gains over the past two years. Growth in 2011 will be supported by projects to be implemented under the governments Economic Transformation Program (ETP), accommodative lending practices and sustained economic growth. Demand, however, will be more selective, with properties in choice locations continuing to attract the bulk of buyers interest.
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Recent Property Cooling Rules

Year 2009 Month Sep. Dec. 2010 Feb. Mar. Measures Withdrawal of interest absorption scheme Reinstate Confirmed Government Land Sales (GLS) Seller Stamp duty for properties sold within one year 80% financing restriction for property purchases Easier access to Reserve List Sites for GLS Greater variety of sites under 2H10 GLS Reserve List

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M ar M -94 ar M -95 ar M -96 ar M -97 ar M -98 ar M -99 ar M -00 ar M -01 ar M -02 ar M -03 ar M -04 ar M -05 ar M -06 ar M -07 ar M -08 ar M -09 ar M -10 ar -1 1

Lum Chang Holdings

Bloomberg: LCH SP Reuters: LUCS.SI Price: SGD0.27 Date: September 6, 2011
The outlook for Lum Changs two residential projects, which are located within the Klang Valley, should remain good as the construction of the Mass Transit Rail (MTR), extension of the existing Light Rail Transit (LRT) and the numerous ETP projects will have beneficial spillover impact on Klang Valleys property market. One of the proposed ETP mega projects is the Kuala Lumpur-Singapore bullet train, which is likely to turn out to be one of the main catalysts to drive Singaporeans demand for properties in the Klang Valley. Meanwhile, the recent signing of the Points of Agreement (POA) between Malaysia and Singapore has heralded a new era of bilateral cooperation between the two countries, which in turn, may boost Singaporeans demand for properties in the Klang Valley.

SWOT Analysis
Strengths
LCH has an established track record having been in business since the 1940s. The group has completed more than SGD7.4 bln worth of projects to date, which include civil and infrastructure, commercial, building of residential apartments, hotel and leisure, hospital, institution and industrial. LCH is capable of handling a diversified range of projects from different sectors. By not being overly dependent on a single project category for its revenue, this helps to mitigate adverse changing market conditions. LCH holds the A1 classification for both general building and civil engineering which allows it to bid for public sector contracts of unlimited value. Its close relationships with established developers such as Frasers Centrepoint and Ascendas group ensure steady orders as well as prompt payments. The management, led by its Executive Chairman, Raymond Lum and Managing Director, David Lum, are supported by a team of key executives who are experienced and competent in their respective functions. With a respectable cash holding of about SGD76 mln as at end-June 2011, we believe LCH is well-positioned to bid for larger jobs as well as continue to work on its projects even if there were delays in payments by clients and ride out the cyclicality of the industry over time.

Growth Strategy
With public construction demand to be sustained over the next few years including the HDBs move to ramp up its supply of new flats, the outlook for construction seems positive going forward. As provided earlier, Singapores construction demand for 2011 is projected to reach between SGD24 bln and SGD30 bln, a continuation of a sustained workload from recent years. In view of this, LCH intends to keep a focused approach to business in Singapore and continues to capitalize on its expertise in managing demanding civil and infrastructure projects. It will further build on its strong track record in both the public and private sectors to maintain a good mix of projects for resilient growth in the business. Management expects competition and escalating construction costs to put pressure on the group margins. As such, management will be selective on construction projects based on its competitive advantage, as it intends to preserve margins, and hence will bid for projects that are viable and cashflow positive to avoid potential cost overruns and failure in project delivery. The group continues to observe prudent financial management with an emphasis on operational efficiencies by reducing working capital via better asset management. This is to ensure the group remains productive and resilient under an increasingly competitive environment. The group will continue to undertake a diverse range of construction projects to avoid dependence on any particular category. Meanwhile, it will also strengthen close alliances with its existing major customers and developers to nurture further brand association. Management also plans to set up business development efforts and continues to expand its foothold in Malaysia and also the PRC although competition will be stiff. For its property development arm, LCH will continue to monitor the property market closely for future projects in Singapore and Malaysia. LCH is not averse to JV arrangements with other property developers and taking a smaller stake in return for the construction contract if it deems it can add value to the construction value chain of the development. In Malaysia, the group is seeking on a JV basis, strategic residential sites mainly in the Klang Valley with good re-development potential. Similar to its current developments in Sungai Long and Kemensah, the group will focus on the mid- to high-end residential segment in Malaysia. Growth in the property division is expected to mitigate the cyclical nature of the construction business and help the group broaden its income base to provide the necessary cushion in the event of any margin squeeze from its construction projects.

Weaknesses
LCH is dependent on the performance of the construction industry in Singapore, which is subject to the general local economy and health of the property market. LCHs heavy reliance on construction revenue makes it vulnerable to sudden changes in the industry and competitive conditions. The group is, however, trying to build up its property income base. Any downturn in the property market, both in Singapore and Malaysia, will affect LCHs property development earnings.

Opportunities
LCH with its proven construction track record in government infrastructure projects is likely to benefit from the sustained high level of public projects in the next few years. With its strength and building track record, LCH is able to expand into overseas markets such as Malaysia and the PRC. Management can leverage on the sustained demand for private property and the improving economy to develop more projects to diversify its earnings base.

Threats
Stiff competition within the construction industry. A weak economy may result in undercutting and erosion in margins. The commencement of certain construction, building and housing projects could be derailed by the lack of suitable funding, as the credit market is still adopting a cautious stance with banks more prudent in their lending.

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Lum Chang Holdings

Bloomberg: LCH SP

Reuters: LUCS.SI

Price: SGD0.27

Date: September 6, 2011

Rise in prices of some basic building materials costs like steel bars and fuel charges and more recently, foreign worker levies will put pressure on the groups margins. Further restrictive measures for the property sector from the Malaysian or Singapore government will cool property demand and dampen sales.

Looking ahead into FY12 and FY13, we expect earnings to be bolstered by the pick-up of the recognition of its construction projects and the progressive billings of its 20%-owned Esparina Residences. The group has secured about SGD450 mln in new construction contracts since the start of 2011. The recent wins and the groups strong track record provide the assurance that more project wins are in the pipeline and the group should continue to benefit from the positive outlook for local construction demand. We have projected gross margin to hover around 11% (FY11:16.8%). We expect margins to be tight given the stiff competition, higher material and subcontractor costs coupled with the gradual rise in foreign workers levy. This is mitigated by the groups active role in continuing to improve productivity and maximizing its cost efficiencies. With the above assumptions, we estimate net profit to increase to SGD20.0 mln in FY12 (+17%) and SGD21.1 mln in FY13 (+5%). We compare LCH with local construction companies of comparable size listed in Singapore which are also involved in property development.

Recent Key Developments

May 2011: Acquired 60% shareholding interest in Fabulous Range pursuant to early exercise of a put option. In conjunction with the acquisition, LCH divested 49% shareholding interest in Fabulous Range and 49% shareholding interest in Venus Capital to Standard Chartered Private Equity. Fabulous and Venus are project companies set up for owning and developing residential properties at Sungai Long and Kemensah in Malaysia. May 2011: Awarded a contract worth SGD152.2 mln to build a commercial development at Science Park Drive Feb 2011: Awarded a contract worth SGD297.7 mln to build office development at North Buona Vista Drive

Peer Comparison
Lum Chang Share Price @ Sep. 5, 2011 (SGD) Mkt. Cap (SGD mln) PER Historical (x) PER Current Year (x) P/NTA Historical (x) Latest FY (SGD Mln) Revenue Pre-Tax reported Profit, as 0.27 102.6 6.0 5.1 0.7 Jun 11 195.5 17.5 17.1 8.9 8.8 KSH Lian Beng 0.34 177.5 3.7 3.6 0.9 May 11 507.3 58.3 48.2 11.5 9.5 BBR Koh Bros 0.19 91.0 7.4 N/A 0.5 Dec 10 364.3 13.2 12.3 3.6 3.4

Management Guidance
On the back of sustained high level of construction demand and the rollout of public sector projects like HDB, MRTs and expressways, the construction industry outlook seems positive going forward. In addition, the bumper release of government land sites and expectations for a sustained take-up rate in the private residential market should continue to buoy the sector. With the anticipated strong expansion in public sector construction demand, management believes there would be more tendering opportunities for major infrastructure developments such as the new MRT lines lined up over the next decade. LCH is presently bidding close to SGD1 bln worth of new projects which include infrastructure works such as the MRT lines and also other institutional, commercial and residential projects. For its property arm, we understand from management that a pick-up in progress billings for Esparina Residences (in which it has a 20% stake) and launches of subsequent phases of its Malaysian properties in Sungai Long and Kemensah should provide positive contribution to earnings going forward. The group continues to seek opportunities on a JV basis in securing strategic sites in Singapore and Malaysia with good redevelopment potential. Meanwhile, management views LCHs respectable cash holding position, zero net gearing and order book backlog of about SGD1 bln as key competitive advantages to bid for larger and quality projects, source for new development to boost its property income and sustain the groups near-term earnings. Management, however, remains cautious on the possible impact of uncertainties in the global and domestic economic conditions, potential price fluctuations of raw materials and government policies and measures on the construction and property industries.

0.21 70.3 3.1 3.2 0.6 Mar 11 262.8 29.3 21.6 11.1 8.2

0.22 65.9 3.4 2.7 0.8 Dec 10 205.8 22.2 19.6 10.8 9.5

Net Profit, as reported Pre-Tax Profit Margin (%) Net Profit Margin (%)

Source: Bloomberg, Company Data

Earnings Outlook
For FY11, revenue declined by a marginal 1% YoY to SGD195.5 mln, while net profit reduced by 32% to SGD17.1 mln. The decline in net profit was mainly due to strong higher-margin property income registered last year from the sale of a plot of land in Kuala Lumpur and conservation bungalows in Swettenham, Singapore.

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Lum Chang Holdings

Bloomberg: LCH SP Reuters: LUCS.SI Price: SGD0.27 Date: September 6, 2011

Profit & Loss

FY Jun. / SGD mln Reported Revenue Reported Operating Profit Depreciation & Amortization Net Interest Income / (Expense) Reported Pre-tax Profit Effective Tax Rate (%) Reported Net Profit Reported Operating Margin (%) Reported Pre-tax Margin (%) Reported Net Margin (%)

Dividend Policy
2010
198.0 33.7 -1.7 0.8 33.8 25.4 25.2 17.0 17.1 12.7

2011
195.5 14.8 -1.7 0.8 17.5 0.8 17.1 7.6 8.9 8.8

2012E
366.1 22.3 -1.8 0.7 28.3 18.0 20.0 6.1 7.7 5.5

2013E
386.0 22.6 -2.0 0.6 29.7 18.0 21.1 5.9 7.7 5.5

LCH does not have a fixed dividend policy. Going forward the quantum of dividend payment will be subject to the groups performance and profitability. For FY11, LCH paid out a total dividend of two cents per share, which represents about 44% of its net profit.

Auditors' History
July 1983 - present: PricewaterhouseCoopers LLP

Source: Company data, S&P Equity Research

Balance Sheet
FY Jun. / SGD mln Total Assets Fixed Assets Current Assets Other LT Assets Current Liabilities LT Liabilities Share Capital Shareholders' Funds

2010
250.3 7.8 193.3 49.3 79.6 22.5 83.8 147.3

2011
313.9 15.2 255.9 42.8 130.6 25.3 83.9 148.4

Source: Company data, S&P Equity Research

Cash Flow
FY Jun. / SGD mln Operating Cash Flow Investing Cash Flow Financing Cash Flow Net Cash Flow Ending Cash Capex

2010
75.4 -36.2 -10.9 28.4 70.2 -4.3

2011
31.0 -54.9 28.1 4.1 74.3 -3.4

2012E
18.7 -10.0 -7.6 1.1 75.4 -5.0

2013E
28.5 -11.5 -7.6 9.3 84.8 -5.0

Source: Company data, S&P Equity Research

Material Disclosures Including Interested Party Transactions

There were no material contracts of LCH involving the interests of directors or controlling shareholders. In FY11, LCH purchased motor vehicles and procured services for a development project in Singapore from L.C. Development (LCD) group amounting to SGD0.18 mln and SGD0.15 mln respectively. At the same time, LCH received SGD0.28 mln for the sale of motor vehicles to L.C. Hotels. * LCD group and L.C. Hotels are related parties by virtue of the companies having the same substantial shareholders as LCH.

New Issues & Placements

Nil.

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