Chip Eng Seng Corp Ltd - CIMB Research 2017-11-03: Steady As She Goes

Chip Eng Seng Corp Ltd - CIMB Research 2017-11-03: Steady As She Goes CHIP ENG SENG CORPORATION LTD C29.SI

Chip Eng Seng Corp Ltd - Steady As She Goes

  • Established contractor and developer with strong construction orderbook.
  • Significant unrecognised pre-sales, replenished Singapore inventory.
  • Sustained profits from Australia, increasing recurrent income base.
  • Trading at 45% discount to RNAV.

An established contractor and developer group 

  • Chip Eng Seng (CHIP) is a contractor turned developer with exposure to the Singapore, Australia and New Zealand residential and commercial property markets. It also has a portfolio of hotels located in Singapore, Australia and Maldives. As at end-2Q17, it has a private and public sector property construction orderbook of S$538m.

Replenishing Singapore inventory 

  • Chip Eng Seng has locked in an attributable residential pre-sales of c.S$900m, derived largely from High Park Residences and Grandeur Park Residences, totalling 1,560 units, to be recognised till 2021. This will likely give the group strong residential earnings visibility. 
  • It recently purchased two land parcels in Singapore, which will add a further share of 800 units, and will likely extend its exposure to the Singapore residential market recovery.

Sustained contributions from Australia 

  • Chip Eng Seng has ventured into the Australian property since 2009 and as at end-2Q17, has four ongoing projects in Victoria. Townhouses at Williamson Estates are progressively handed over and the 700-plus unit South Melbourne project could be launched next year.

Terminating Tower Melbourne sale contracts 

  • Chip Eng Seng announced that it intends to terminate the sale contracts for 581-unit Tower Melbourne. While the project is well sold, construction works had stalled since 2013 due to objection raised by the owner of the adjoining property. 
  • Chip Eng Seng has considered the status of the legal proceedings and is of the view that given the indefinite delay of project timeline it will not be possible to meet the contractual deadline to register the plan of subdivision. Chip Eng Seng has not recognised any contributions from this development.

Adding New Zealand office to recurring income base 

  • To grow its recurrent income base, Chip Eng Seng had recently acquired an office property in Auckland, jointly with Roxy Pacific. Contributions from this property will likely add to the recurrent income base from its hotel operations. 
  • Apart from the 442-room Park Hotel Alexandra, it has a 70% stake in Grand Park Kochipparu in Maldives and recently bought the 84-room Sebel Mandurah. Its hotel assets are held at cost and could lift book value significantly when marked to market.

Trading at 0.79x P/BV and 45% discount to RNAV 

  • Chip Eng Seng's net debt to equity ratio stood at 0.84x as at end-2Q17. Chip Eng Seng paid DPS of 4 Scts in FY16 and FY15. Assuming similar quantum in FY17F, this translates to a 4.1%

LOCK Mun Yee CIMB Research | 2017-11-03
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