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Chip Eng Seng's HDB project provides earnings visibility well into 2021

Michelle Zhu
Michelle Zhu2/1/2018 11:05 AM GMT+08  • 2 min read
Chip Eng Seng's HDB project provides earnings visibility well into 2021
SINGAPORE (Feb 1): DBS Vickers Securities is maintaining its “buy” call on Chip Eng Seng with a target price of $1.18 after the group announced its construction net order book had hit about $626.5 million, boosted by the award of a $168 million contra
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SINGAPORE (Feb 1): DBS Vickers Securities is maintaining its “buy” call on Chip Eng Seng with a target price of $1.18 after the group announced its construction net order book had hit about $626.5 million, boosted by the award of a $168 million contract by the Housing & Development Board (HDB).

To recap, the first part of the contract entails designing the upcoming public housing development at Sengkang, as well as relocating bus shelters and constructing bus bays. It is scheduled for completion by Nov 2018.

The second part, which represents the bulk of the contract value, involves constructing 10 residential blocks, two carparks and community facilities and services. It will span approximately 32 months, with estimated completion in June 2021.

In a Thursday flash note, lead analyst Derek Tan says the contract is unlikely to have a material impact on the group’s FY18 earnings, but should nonetheless provide earnings visibility well into 2021.

Execution on this project should further enhance Chip Eng Seng’s portfolio and track record, and hence put the group in good stead for upcoming tenders, he adds.

“Coupled with a steadily growing recurring income pool, we believe this provides support for dividends to at least be maintained at the historical average of 4 cents per share. At current prices [last traded: $1.01], this represents prospective yield of c.4%,” says Tan.

As at 11:03am, shares in Chip Eng Seng are trading 2 cents higher at $1.03, or 0.82 times FY18F book value.

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