SINGAPORE (Feb 14): DBS Group Research is keeping its “buy” recommendation on Chip Eng Seng Corporation (CES) with an unchanged target price of $1.18, on the back of its strong earnings visibility and the potential to unlock its undervalued hotel portfolio.
According to lead analyst Carmen Tay in a Wednesday report, CES has been “selectively acquiring projects in Singapore and overseas which are ripe for the picking.”
“Most of the group’s residential projects have already been substantially sold and, together with an estimated construction order book of $560 million (as at Jan 2018), CES has locked in at least $1 billion in sales – which will be recognised progressively, underpinning strong earnings visibility in the coming years,” says Tay.
Meanwhile, she notes that the group’s earnings and net asset value (NAV) is also likely to be boosted in the medium term by plans to launch recently-acquired residential sites in Woodlands and Changi in 2H18 and 1H19, respectively.
At the same time, Tay says CES could potentially unlock its sizeable – but undervalued – hotel and commercial portfolio.
“While the hotel provides stable recurring cash flow to the group, substantial value could be unlocked, given the robust demand for hotel assets in Singapore,” Tay says.
DBS’ positive stance on CES comes despite the group on Tuesday reporting a 2.4% dip in earnings to $14.5 million in the 4Q ended December. This brings full-year earnings to $35.5 million in FY17, just marginally lower than earnings of $35.7 million a year ago.
Profit after tax was actually 7.8% higher y-o-y at $55.8 million for FY17. However, earnings dipped as a result of a 26.4% increase in profit attributable to non-controlling interests.
FY17 revenue grew 14.9% to $859.7 million, from $748.0 million a year ago.
See: Chip Eng Seng posts 2.4% decline in 4Q earnings to $14.5 mil
“Apart from the strong earnings visibility from ongoing development projects and the potential unlocking of its undervalued hotel portfolio, we also like CES for its strong dividend payment record,” Tay adds.
She notes that CES has maintained a fixed dividend of 4 cents per share over the last eight years, offering an attractive yield of 4.2%.
As at 3.53pm, shares of Chip Eng Seng are trading half a cent lower at 94.5 cents, implying an estimated price-to-earnings ratio of 18.6 times for FY18.
