SINGAPORE (May 7): Phillip Capital is maintaining its “buy” call on developer Chip Eng Seng (CES) Corporation with an unchanged target price of $1.21, which translates to a P/NAV ratio of 0.95 times at the counter’s closing price of 93 cents last Friday.

This comes after CES’ 1Q18 earnings came in line with expectations, with revenue for the quarter growing 22.3% to $204.3 million on improved performance from its hospitality and property segments on new acquisitions and progressive recognition from unbooked development profits, respectively.

See: Chip Eng Seng reports 30% fall in 1Q earnings to $6.1 mil on lower sales from construction

In a Monday report, analyst Tan Dehong says CES remains a good proxy to the upcycle in the Singapore residential market, in his view, given its proven track record in project execution as well as its well-stocked land bank.

Noting improved occupancy rates at Park Alexandra Singapore and management expectations of the group’s general hotel occupancy rates to remain stable, the analyst is particularly positive on the group’s continued momentum in residential inventory sales.

Based on his estimations, about $235 million in unbooked development profits still remain for both Grandeur Park and High Park Residences combined.

With the majority of these profits to be progressively recognised over the next two years, Tan expects CES’s earnings for FY18-19 to continue being supported on top of contributions from the launch of the group’s 60%-owned Woodleigh site, which could serve as a share price catalyst in the event of healthy take-up rates.  

Nonetheless, Tan remains cognisant of increased administrative costs over the latest quarter as well as further delays in the CES’s residential South Melbourne residential project, which could present downside risks to his view.

“The launch date for the group’s 703-unit residential project in Melbourne has been postponed again from the scheduled 2Q18, in view of the soft market conditions. The group purchased the site in March 2016 for A$52 million, and original launch was for 1H17,” notes the analyst.

As at 11am, shares in CES are trading 1 cent lower at 92 cents or 0.75 times FY18 book.