• Good value here at 2.7x forward PE
• Conviction BUY with S$0.33 FV

Expect FY14 earnings to jump 8.4x YoY

We initiate coverage on Libra Group Ltd (&ldquo Libra&rdquo ) as our conviction BUY in the smallcap space with a fair value estimate of S$0.33. Given our analysis of this M& E specialist&rsquo s order book, upcoming FY14 earnings is forecasted to increase a whopping 8.4 times YoY (and 12.2 times over its last 3Y average) to S$4.7m. We further forecast FY15 earnings to further grow 65.9% YoY to S$7.8m as the new management team, who took over operations in 1Q14, continues to expand and position the company to capitalize on the healthy public construction pipeline. Our fair value estimate of Libra is based on an undemanding 4.8x forward FY15 PE, which represents a 35% discount to the industry peer average of 7.4x.

Already showing initial signs of earnings upswing

We highlight that this under-the-radar company is already showing initial signs for an earnings upswing: 1H14 earnings had jumped 218.1% YoY to S$3.0m. The new management team, which includes majority shareholder and executive Chairman/CEO Mr Chu Sau Ben, took over day-to-day operations in 1Q14 and is rapidly gaining traction in terms of growing business volumes (including the upstream main contractor segment), leveraging on the firm public construction outlook in Singapore (forecasted at S$14b-18b per annum over FY15-16), and strengthening margins through active rationalization of business costs and operations.

Good value here with key re-rating catalysts ahead

We believe Libra represents good value here at only 3.4x FY14/15 blended P/E and 2.7x FY15 forward P/E (versus a peer average of 7.4x FY15 PE). In addition, Libra&rsquo s dividend yield is forecasted to jump dramatically from 1.6% last year to 8.1% in FY14 and 9.7% in FY15. Looking ahead, we expect increased visibility of Libra&rsquo s earnings and dividends growth &ndash particularly through new order wins and upcoming FY14 results &ndash to form compelling re-rating catalysts for its share price. Initiate with BUY and S$0.33 fair value estimate.

Source: OCBC Research - 27 Oct 2014