Excluding impairment loss, FY08 results in line with expectations but below consensus estimates – BBR’s FY08 net profit declined 19.9% to S$3.6m, mainly due to provision for impairment loss in value of investment securities of S$2.5m relating to an investment in a toll road in Daejeon, Korea and provision for impairment loss in value of land of S$2.6m relating to the freehold property at Holland Hill. This did not come as a surprise to us as we have already accounted for it in our RNAV calculations. Excluding these provisions, results would have been in line with our forecast but below consensus estimates of S$10.4m. Share of results from associates came in at S$3.0m, in line with our estimates primarily from Nassim Hill development which BBR holds a 48% stake.

Margins likely to be remain weak but cash flows to improve from Government initiatives – BBR’s outstanding order books for its construction contracts as at FY08 stood at $320m. Based on our estimates, private/public sector jobs mix is approximately 25/75. Given Singapore Government’s pump-priming initiatives, we have included S$100m of contract wins for FY10F in our earnings forecast. However, we do not expect margins for these contracts to be fantastic as contractors are expected to price down for new tenders, in line with the decrease in materials cost, and expected increase in capacities of contractors in FY10 when most jobs are slated for completion. On a positive note, the Singapore Government agencies are providing more frequent and prompt payments to construction firms for work done to ease cash flow of construction firms undertaking public sector projects. As such, we expect BBR’s cash cycle to improve slightly in FY09F.

Earnings forecast lowered – We have lowered our FY09F earnings estimates by 34.0% to S$7.0, after adjusting for the faster than expected completion of construction projects in FY08 and lowering our gross margin assumption by 1.7 ppt to 4.9%, in line with the gross profit margins achieved for 4Q08.

Maintain HOLD; Target price lowered to S$0.03 – We continue to use sum-of-the-parts valuation methodology to value its property development and construction business. We have revalued all of the Group’s unsold development projects at lower than recently transacted price to assume 100% sales in current market and value construction business at 3x FY09F (from previously 5x FY08F) construction earnings. We increased our discount factor to SOTP valuation to 40%, in line with the discount applied to other property stocks under coverage, bringing our target price to S$0.03 (from S$0.04 previously), representing a 17% discount to FY09 book value. Maintain HOLD.