06 August 2014

Chip Eng Seng Quarterly Report Summary - August 2014

Company Business Review

“Despite increased pressure arising from a softer property and construction outlook, worker shortages and higher levies, we have continued to perform well. Meanwhile, our financial position remains in good stead to weather the economic uncertainties ahead, while placing us in at an advantageous position to tap on viable business opportunities that may come our way in both Singapore and overseas.”

Comment on Outlook

Going forward, the Group will continue to exercise prudence in expanding its land bank in view of a softening property market in Singapore as it expects challenging times ahead as the cooling measures continue to weigh on the overall demand for properties.

On a segmental basis, the Property Developments Division expects its wholly-owned projects, Belvia and Alexandra Central, to be completed (with revenue and profits recognised) in 3Q 2014 and 4Q 2014 respectively.

Outside Singapore, the Group will continue to focus on preparing its properties in Melbourne (Doncaster and Victoria Street) for launch. Notably, the Group intends to launch its residential development in Doncaster before the end of 2014. The proposed development will feature approximately 105 townhouses as well as 72 low rise apartments. With regards to Tower Melbourne, there are issues pertaining to demolition works. The Group expects a delay in the completion of Tower Melbourne due to ongoing protracted proceedings with the adjoining owner as to what constitutes adequate protection work over the adjoining property.

At the Property Investments Division, the Group is currently carrying out addition and alteration (“A&A”) works at office building, CES Centre (formerly known as San Centre), located along Chin Swee Road. The A&A works are expected to be completed by the end of this year and is expected to yield a stable rental income to the Group following its completion.

As at 30 June 2014, the Group’s construction order book stood at $548.0 million after factoring in the latest $165 million HDB contract secured in June 2014. In anticipation of a heightened demand for public housing in the times ahead, the Group’s Construction Division plans to continue actively tendering for more projects in this segment going forward, while scaling back on private residential projects.

On the hospitality front, the Group’s first hotel property along Alexandra Road is expected to be completed sometime in 2015.

My Notes

1H14 EPS: 6.26 cents
NAV: 80.44
Annualized EPS / NAV:  16%

With completion of Belvia and Alexandra Central in 2H2014, I expect the company could easily have another record year this year. The PE could be lower than 5 for FY14. The counter is now trading near to current book value (without take into account future earnings), I believe the counter is still trading at slightly undervalued to reasonable price range. The company may announce a good dividend this year or at least maintain its 4 cents dividend policy since year 2012.

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