Why this less fancied property developer could soon find favour

By EdgeProp Singapore / The Edge Singapore | November 7, 2017 5:00 PM SGT
DBS Group Research says it sees a buying opportunity for Singapore-based integrated real estate developer Chip Eng Seng Corporation (CES) ahead of the upcoming property upturn.
“A largely uncovered stock, we like CES for its strong earnings visibility and the potential to unlock its undervalued hotel portfolio,” says DBS lead analyst Carmen Tay in a Monday report.
DBS is keeping Chip Eng Seng at “buy” with an unchanged target price of $1.18, representing a 20% upside from its current trading price.
Chip Eng Seng saw its earnings more than double to $14.0 million in the 3Q17 ended September, from $5.7 million a year ago.
Revenue for 3Q17 ended September increased 37.8% to $209.2 million, mainly driven by robust contributions from the property developments division.
“CES has been selectively acquiring projects in Singapore and overseas, which are ripe for the picking,” says Tay.
At the same time, the analyst points out that most of the group’s residential projects have already been substantially sold.
“Together with a construction net order book of $458.4 million as at end-3Q17, CES has locked in at least $1 billion in sales – which will be recognised progressively, underpinning strong earnings visibility in the coming years,” she adds.
In addition, CES has unveiled plans to launch recently acquired residential sites at Woodleigh and Changi in 2H18 and 1H19, respectively.
According to Tay, contributions from these upcoming residential developments should boost the group’s earnings and net asset value (NAV) in the medium term.
Meanwhile, the group is on the lookout to add a fourth hotel asset amid steadily rising occupancies across its existing hotel assets.
CES has seen a share price correction amid ongoing legal proceedings involving its Tower Melbourne (TM) project entered by its wholly-owned subsidiary in Australia, CESQ.
However, Tay believes that the correction is unwarranted and opens the door to a buying opportunity.
“We firmly believe that the risk of impairment to the TM site’s book value is low at this juncture given that median prices for residential projects in the vicinity have risen close to 50% since the project’s launch in 2012,” she says.
Tay adds that it may even be positive for the group in the longer term if they are successful in disposing the property at current market value, or if it chooses to relaunch the site at a later date.
As at 12.28pm, shares of Chip Eng Seng are trading 3.5 cents higher at 98 cents, implying an estimated price-to-earnings ratio of 17.1 times and a dividend yield of 4.3% in FY17.