Lum Chang could ride on construction upcycle, restructuring to high single-digit profit growth: analyst

[SINGAPORE] Mainboard-listed construction and property development group Lum Chang has been one of the key beneficiaries of a construction boom in Singapore, with its full-year net profit more than doubling in its FY2025 ended June.

The counter has also outperformed the wider market, posting a year-to-date total return – with dividends reinvested – of 69.6 per cent. In comparison, the benchmark Straits Times Index returned 21.1 per cent over the same period. 

Analysts believe the group could keep recording high single-digit profit growth in FY2026, on the back of a corporate restructuring and Singapore’s construction upcycle.

“FY2025 represents an inflection point for Lum Chang, with the company successfully navigating post-pandemic challenges and emerging with strengthened operational capabilities,” said Tickrs Financial Singapore analyst Jaimes Chao in a recent report.

Tickrs is a financial services company that holds a capital markets services licence from the Monetary Authority of Singapore.

The analyst also noted that Lum Chang is “well-positioned to deliver normalised high single-digit profit growth in FY2026” due to its robust order book and improved project economics.

Tickrs has initiated coverage on the stock with a “buy” call and a target price of S$0.525 – implying an upside of 14 per cent from its Oct 13 closing price of S$0.46. This is assuming a price-to-earnings (P/E) ratio of 10.5 times for the group’s FY2026 net profit.

In a bull case scenario where Lum Chang is valued at 13 times P/E, the implied fair value is around S$0.65, Chao said.

“Supported by a net-cash balance sheet and prudent management, the stock offers a compelling risk-reward profile to capture Singapore’s ongoing infrastructure demand,” he added. 

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While he believes “the market has yet to fully price in its improved earnings trajectory and sum-of-the-parts value”, he cautioned that “investors should be mindful of the execution risks and market cyclicality inherent in the construction sector”.

Improved margins

He noted the construction industry’s sustained upcycle, with the Building and Construction Authority forecasting S$47 billion to S$53 billion in contracts awarded this year.

He also highlighted Lum Chang’s A1-grade contractor status, which has helped the group clinch significant projects such as Changi Airport Terminal 5, MRT line extensions, and public housing developments.

The group’s current order backlog of about S$980 million ensures “multi-year visibility and operational efficiency through economies of scale”, the analyst added. 

He also noted the group’s improved margins in FY2025 – gross margins rose around 300 basis points to 11.5 per cent, and net margins increased to 4.1 per cent.

This stemmed from Lum Chang’s strategic digitalisation initiatives, he said, including Python-based automation for tender preparation and human resource functions. This reduced the manual workload by about 30 per cent in optimised departments.

Lum Chang has also made efforts to future-proof its workforce by investing in technology such as building information modelling and artificial intelligence. “This early-mover advantage helps to attract tech-savvy talent, and sets the company apart from its mid-cap peers,” Chao said.

He added that the group’s focus on higher-margin projects and post-pandemic supply chain stabilisation contributed to the structural shift in profitability as well.

In July, Lum Chang spun off its interior fit-out business, Lum Chang Creations, in an initial public offering on the Singapore Exchange. It raised S$12.3 million and was 47.3 times subscribed by retail investors – underscoring the unit’s “niche expertise in heritage conservation and ‘urban revitalisation’ projects”, Chao said.

“Fortress” of financial flexibility

The analyst noted that Lum Chang’s financial resilience – with a net cash position of about S$40 million – provides a strategic advantage in tender evaluations, where clients prioritise contractors with strong balance sheets.

This will help the company take on larger projects, form strategic joint ventures, and maintain dividend distributions through cycle variations, he added.

He also said the group has an “efficient” balance sheet, with working capital improving as legacy projects are completed.

For FY2025, Lum Chang declared a total dividend of S$0.04 a share, signalling “confidence in its financial health and a shareholder-centric approach”. This was up from the dividend per share of S$0.015 in FY2024.

“The secure and attractive dividend yield provides a solid income floor for investors, while the ‘fortress’ balance sheet offers clear upside optionality,” Chao said.

“It can fund growth without straining operations, support competitive tendering, and provides a buffer against industry volatility.”

Lum Chang’s FY2025 net profit was S$15.6 million, up 112 per cent from S$7.4 million the year before.

Its full-year gross profit climbed 30 per cent to S$53.3 million, despite an 8 per cent drop in revenue to S$462.9 million due to declines in the construction and property segments. Overall gross margins improved as cost of sales fell 11 per cent.

Chao noted that Lum Chang trades at a deep discount to its regional peers “while delivering competitive return on equity and superior dividend yield”. 

“Our conservative target price of S$0.525 represents compelling value with multiple expansion potential,” he said.

The counter was down 2.2 per cent or S$0.01 at S$0.455 as at 4.46 pm on Wednesday (Oct 22).