Chip Eng Seng

Phillip Securities Research on 20 Feb 2013

WE identified three drivers that could underpin its NAV growth for the next three years:

• Increased public housing construction to support construction demand.
• Residential projects under development are mostly fully / substantially sold, providing relatively secure earnings outlook. We estimate the net margins of these projects to range from 8 per cent to 33 per cent, which could translate into accretion of about S$0.51 per share.
• High selling price achieved at Alexandra Central strata-titled retail units will further boost accretion to NAV by about S$0.331 based on our estimates.

The business nature exposes the company to the risk of increase in labour costs and building materials costs that could affect its margins; further cooling measures for the property market could affect its future residential sales progress and prices. Its upcoming hotel business is very much dependent on tourist arrivals to Singapore.

Its NAV is S$0.6481 as of Q3 FY2012, and the current trading price implies P/B of 1.27 times. If we take into consideration the accretions from its projects under development, the NAV is set to grow to S$1.49 by end-2015 (before distribution of earnings as dividends). This value is reasonably safe to achieve in our view, given that its residential projects and the strata-titled retail units at Alexandra Central have substantially been sold.

These estimates have yet to factor in potential surplus to be generated from the other projects in its landbank, and the potential profits from its construction contracts worth S$645 million. Despite the strong share price performance in the past month, we believe that the stock valuation is still inexpensive, considering its high intrinsic value to be realised in the next three years.

We do not have a rating on Chip Eng Seng.