Chip Eng Seng Corporation Ltd - Phillip Securities 2018-02-19: Strong Revenue Visibility In FY18

Chip Eng Seng Corporation Ltd - Phillip Securities 2018-02-19: Strong Revenue Visibility In FY18 CHIP ENG SENG CORPORATION LTD C29.SI

Chip Eng Seng Corporation Ltd - Strong Revenue Visibility In FY18

  • 39% y-o-y jump in contributions from property development segment.
  • Improved occupancies at Singapore and Maldives hotels.
  • Timely replenishing of construction order book with S$168mn design and build contract from HDB.
  • Maintain BUY with unchanged STOP-derived Target Price of S$1.21 (40% discount to RNAV).



The Positives


+ 39% y-o-y jump in contributions from property development segment. 

  • Continued progressive revenue recognition from the two substantially sold local residential projects High Park (fully sold) and Grandeur Park Residences (88% sold) should continue to support earnings over the next two FYs. 
  • We expect c.S$200mn of development profit contribution from these two projects over the next 2 FYs.

+ Improved performance from hospitality assets. 

  • Average occupancy improved for Park Hotel Alexandra (to above 80% vs mid 70% for FY16) and the newly opened Grand Park Kodhipparu, Maldives (50+%). This is in tandem with higher corporate demand and tourist arrivals.

+ Timely replenishing of construction order book with S$168mn design and build contract from HDB. 

  • With the latest contract win, total construction order book should stand at c.$570mn currently. 
  • We also expect higher margins from the latest contract, possibly in the low teens due to the design and build nature of the contract (vs the mid-single digit margins for typical pure construction projects).


The Negatives


- Slower momentum in Australian residential sales. 

  • Willow Apartments is 69% sold as at end FY17 (vs 53% at end FY16). Construction for the project is estimated to complete in March 2018. 
  • We expect sales momentum to improve post-construction completion as buyers typically are more receptive to finished products where they can see and feel the product.


Outlook

  • Revenue for FY18/19 will continue to be supported by the estimated c.$210mn development profits from High Park (GDV S$650mn), Grandeur Park (GDV S$744mn) and Willow Apartments (GDV S$48mn) which will be progressively recognized. 
  • The Group’s hospitality assets in Singapore and Maldives should continue to perform better with tapering hotel supply in both countries and improving tourist arrivals. 
  • Further RNAV boost could come from a favourable exit from Tower Melbourne.


Maintain BUY with unchanged Target Price of S$1.21 

  • Chip Eng Seng (CES) remains a good proxy to the upcycle in the Singapore residential market with its proven track record in execution and well-stocked land bank. 
  • The Woodleigh site is due for launch in 3Q18, with an estimated GDV of S$720mn (60% stake) and share price catalyst could come from healthy take-up rates at the launch.







Dehong TAN Phillip Securities | https://www.stocksbnb.com/ 2018-02-19
Phillip Securities SGX Stock Analyst Report BUY Maintain BUY 1.210 Same 1.210



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