SINGAPORE (Nov 10): Phillip Capital is maintaining its “buy” call on Chip Eng Seng while raising its target price to $1.21 after incorporating the construction business as well as a narrower discount to RNAV to 40% from 50%, in view of the current upcycle in the property market.
This comes after the property and construction group last week reported a more-than-doubling of 3Q17 earnings to $14 million, on the back of higher revenue driven by three of its Singapore residential projects including recognition of revenue from Grandeur Park and Fulcrum.
See: Chip Eng Seng's 3Q earnings more than double to $14 mil
In a Thursday report, analyst Tan Dehong says the cancellation of the group’s purchase of Melbourne Tower could enable it to move on with other exit options, and that any materialised profits from such options will be accretive to his RNAV estimates.
He is also “not overly concerned” with slow residential sales of the group’s Australian projects, as he estimates Willow Apartments’ gross development value (GDV) to be small at $53 million.
“Our forecasts are for the project revenue to be fully recognised by end FY18. The group’s intended launch for another South Melbourne project is also delayed from 2H17 to 2Q18, in view of the slow sentiment,” elaborates Tan.
Meanwhile, the analyst believes Chip Eng Seng’s FY17/18 revenue will continue to be supported by progressive revenue recognition from High Park, Grandeur Park and Willow Apartments – and thinks RNAV can be further boosted from a favourable exit from Tower Melbourne.
“We note that Melbourne city home prices have increased c.50% from 2012-2013 when the group booked in most of the original sales for the project. In view of the uncertainties surrounding the project, we will not factor in any contributions from Tower Melbourne until we get further clarity,” says Tan.
“Chip Eng Seng remains a good proxy to the upcycle in the Singapore residential market, with its proven track record in execution and well-stocked land bank, in particular, the Woodleigh site due for launch in 2H18, with an estimated GDV of $720 million,” he adds.
As at 12:28pm, shares in Chip Eng Seng are trading 0.52% higher at 96 cents, or 0.58 times FY18 book value.
