SINGAPORE (Feb 19): Phillip Capital is keeping its “buy” call on Chip Eng Seng (CES) with an unchanged target price of $1.21 on the back of strong revenue visibility in FY18.
The target price represents a 40% discount to CES’ revalued net asset value (RNAV).
“Revenue for FY18/19 will continue to be supported by the estimated close to $210 million development profits from High Park, Grandeur Park and Willow Apartments which will be progressively recognised,” says analyst Tan Dehong in a Monday report.
CES reported a 38.8% jump in contributions from its property development segment for FY17, with continued progressive revenue recognition expected to support its earnings over the next two financial years.
“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,” Tan says.
CES’ construction order book has also been bumped up to approximately $570 million, following the award of a $168 million design-and-build contract from HDB.
“We also expect higher margins from the latest contract, possibly in the low teens due to the design and build nature of the contract (compared to the mid-single digit margins for typical pure construction projects),” Tan adds.
In addition, the analyst opines that the group’s hospitality assets in Singapore and Maldives should continue to perform better with improving tourist arrivals and tapering hotel supply in both countries.
Revenue from CES’ hospitality segment surged 40.8% to $38.6 million in FY17 on the back of improved average occupancy at Park Hotel Alexandra in Singapore and the newly opened Grand Park Kodhipparu in Maldives, in tandem with higher corporate demand and tourist arrivals.
At the same time, Tan says CES could see a share price catalyst from healthy take-up rates at the launch of its Woodleigh site in 3Q18.
As at 11.21am, shares of Chip Eng Seng are trading up 4 cents, or 4.2% higher, at 99.5 cents. This implies an estimated price-to-book ratio of 0.8 times and a dividend yield of 4.4% for FY18.
