In her July 18 report, Mo noted that Lum Chang Creations is a dominant player in the urban revitalisation specialists industry with an estimated market share of 15.7%, according to research firm Converging Knowledge. The company also has a proven track record of completing various projects including St James Power Station, the National Museum of Singapore, Bedok Community Hospital and Singapore Marriot Tang Plaza Hotel.
Mo also believes the key growth drivers within the industry, which includes the government’s commitment to protecting local heritage buildings, the adaptive reuse of heritage property, an increasing number of conservation projects, as well as robust growth in Singapore’s economy and construction industry will lead to “robust earnings growth” for the company. On this, she points out that Lum Chang Creations generated an “impressive” two-year revenue and earnings compound annual growth rate (CAGR) of 106% and 206% respectively for FY2022 to FY2024.
“We expect a robust order book of $123 million as of May 31 to drive a strong earnings growth of 144%/12% for FY2025/FY2026 respectively,” she writes. Of the order book, about $34 million was awarded between January to May this year and the contracts are likely to be fulfilled in the next three months to two years, she adds.
Finally, Lum Chang Creations has a business model that enjoys high margins, sees high returns on equity (ROEs) and is cash-generative. The analyst notes that the company has been able to see “superior” net margins of around 10% and ROE of above 30% over FY2024 to FY2025 as it “focuses on developing and retaining highly-skilled employees with leadership capabilities”.
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“This enables it to outsource lower skill job requirements to third parties, hence minimising excessive capex (capital expenditure) and opex (operating expenditure) needs,” she says.
She adds that the company operates in a niche segment with an oligopolistic market structure of only around five majors.
Furthermore, Lum Chang Creations has generated strong cash flows and will sit on a net cash of $29 million in July. The amount includes the $7 million in net initial public offering (IPO) proceeds, forming around 37% of its market cap.
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Mo’s target price is based on an FY2026 P/E of 9.5 times, or a 10% discount to its peers’ average. The company also offers an “attractive” dividend yield of 4.9% for FY2026, which is one of the highest among its peers.
Lum Chang Creations announced, on July 18, that its IPO was 2.0 times subscribed for all 49 million shares. The company’s public tranche of one million shares was 47.3 times subscribed, with 599 valid applications amounting to 47.3 million shares. All 48 million of the placement shares were subscribed. The public tranche amounted to $11.8 million while the placement tranche raised $12 million.
Based on the invitation price and the company’s post-invitation share capital of 315 million shares, Lum Chang Creations will have a market capitalisation of $78.75 million.
