Chip Eng Seng

With regards to the point on business and structure, have we given serious thought about how seasoned developers such as CES are able to make such high returns on their development projects?

The answer is OPM. A bank loan is usually used to purchase the land, and at launch, if sales are good, the developer could find itself in the pleasant situation of financing the construction with progress payments from buyers. In such situations, a "high" working capital is obviously the norm as all costs relating to the project are capitalized under the development properties account, which is the inventory of the developer. Therefore, I don't quite follow the logic "in order to sell assets -> developers need high working capital". Rather, the correct logic should be, in order to sell assets, developers need to develop a unique selling point for their projects, coupled with attractive pricing, particularly in today's lacklustre property market. One key step to achieve this is not to bid aggressively for land, as the land cost forms a substantial part of the development cost of a project in Singapore. Looking through CES bid history, can we find any example where CES lodged and won a tender with an extremely bullish bid?

And with regards to a fully cash holding company trading at a discount of 15% to cash, I wonder how you arrived at that conclusion, as no example comes to mind. Could you elaborate?

(13-05-2015, 10:38 AM)specuvestor Wrote:

(13-05-2015, 09:48 AM)westin1 Wrote: Thats why we need a balance of optimism and pessimism on ces... there's no right or wrong... its share price tells it all... we have to see mr market face... where it will eventually go... if jeff ta is so good.... he should be a millionaire by now... what bullish doji etc.....

(13-05-2015, 10:07 AM)westin1 Wrote: Maybe he bought a ces condo lol.....look at ces price now...it really look pathetic for an undervalued gem...was expecting it to soar above $1 months ago...but it never happen...looks like the $0.80s are here to stay for quite awhile...

If Mr Market is so brilliant to "tell it all" then don't bother to do FA already. In fact you should be doing TA cause the basis of TA is much more perfect market driven than FA. To be fair neither are we going to see your 45/10cts any time soon

But I agree that what makes this forum great is differing opinions and the lattitude the moderators give, even to those with dubious intent or track record. Differing opinion makes our investment thesis more robust and rounded.

(10-05-2015, 09:56 PM)roxhockey Wrote: RNAVs are not directly comparable between companies as there's varying levels to risk of achievement. A project with RNAV of 30c that is in the planning phase should have a much greater discount than one that is six months away from TOP.

In Chip Eng Seng`s case, the actual NAV today is probably around $1.30 (reported NAV adjusted for dividend and adjusted for hotel revaluation). The hotel revaluation will not happen for accounting purposes until end of year, but its silly to call it RNAV and apply a 50% discount as I can book a room there now - for economic purposes its realised NAV.

Now, a counter can always trade at a discount to NAV and to make money you're relying on either a) others buying to boost stock price or b) nav value to be proven economically correct through dividends, asset sales or takeovers.

In CES`s case the buyback will do a). If actual NAV is truly 1.30 and the share price is 85c, the company has an amazing opportunity to buy large amounts and realise a 50% return immediately. That's much better than anything you can get in the property market and I expect them to do a lot of it.

Thought I'll add on to what roxhockey has commented. What a lot of forumers are focusing on is the Asset part while neglecting the Business and the Structure part. The business model of developers is very different from say a production company and say a palm oil company. A production company produces goods and services from the assets, and the assets depreciates. A palm oil company produces harvest from their biological assets but their are renewable in a sense vs say an oil company.

So what is the business model of developers? Oil company and developers have these things in common: they are actually selling assets while production companies don't. But the former has pricing that is determined by global demand and unknown asset value, the latter pricing is much more localised and discrete sellable assets ie you can point out how much inventory they have with high precision.

In order to sell assets, developers need to have high working capital. Which is why if they need to have growth, they need to recycle their cash and churn out more assets to sell if assume ASP constant. Some developers branch into more constant cashflow business with investment properties like offices and retail, but it still locks up capital. That is fundamentally why REIT is a very good idea for them.

On the Structure side, even a fully cash holding company trades at around 15% discount to cash. What that means is the RNAV of a developer with the risk associated like what Roxhockey mentioned, should never trade near to RNAV. In fact seasoned investors will know that when developers trade near to RNAV, it is either the beginning of a bull market ie analysts are slow to revise ASP up, or the market is bubbly. Experience and skill are required to know which is which

(13-05-2015, 10:12 AM)jjlim84 Wrote: a mixture of optimism and pessimism is definitely beneficial to everyone, especially all statements should be based on comprehensive facts, and conveyed in a neutral tone

well said!

especially in open forums, to avoid mis-communications.

I was referring to developers as a business model. I wasn't specifying CES as this applies to all developers, so ya this is the "norm". The issue I am highlighting is forumers are trying to peg CES to RNAV.

When you talk about cost being capitalsed we know you are not talking about cashflow. Working Capital is not a number that is in a B/S (pun intended), it is real hard cold cash being tied up related to generating activity for the real world business. It should be part of the ROIC analysis

(13-05-2015, 02:28 PM)Teletubby Wrote: In such situations, a "high" working capital is obviously the norm as all costs relating to the project are capitalized under the development properties account, which is the inventory of the developer.

As for cash companies with no business I think recently Memstar comes to mind but that one is a bit more complicated that maybe CityFarmer can chime in more. There are quite a few cash companies in the past including a hotel business which I cannot remember now, which I'm sure some VB can refresh our memory. Nonetheless as discussed in other thread there is a floor price for shell companies of around $15m as that seems to be the price for an unencumbered mainboard listed shell.

The only time I can remember stock trades significantly higher than a cash shell with no business is during the dot coms.

Pardon me, but I don't get your point at all. CES is a property development cum construction cum hospitality company, shouldn't we value such companies using a SOTP approach? I see nothing wrong in valuing the property development segment using the RNAV approach, of course we can argue about the appropriate discount to the RNAV.

As for your working capital point, I don't get your pun too. According to Investopedia, working capital is defined as current assets less current liabilities. Aren't these numbers from the balance sheet? Of course if you are trying to look deeper, yes indeed cold hard cash is tied up in the business for the purpose of generating profits. But generally, most business have their cash tied up for these purposes, regardless of whether they are a manufacturing company or oil company etc. If you use the ROIC in place of the ROE to analyse the profitability, you are neglecting management's ability to use debt suitably to boost profits of the shareholders. Not too useful in my view.

And finally, I don't see how your explanation on cash companies result in the conclusion that cash companies trade at a 15% discount to NAV.

Please pardon my stupidity.

(14-05-2015, 11:19 AM)specuvestor Wrote: I was referring to developers as a business model. I wasn't specifying CES as this applies to all developers, so ya this is the "norm". The issue I am highlighting is forumers are trying to peg CES to RNAV.

When you talk about cost being capitalsed we know you are not talking about cashflow. Working Capital is not a number that is in a B/S (pun intended), it is real hard cold cash being tied up related to generating activity for the real world business. It should be part of the ROIC analysis

(13-05-2015, 02:28 PM)Teletubby Wrote: In such situations, a "high" working capital is obviously the norm as all costs relating to the project are capitalized under the development properties account, which is the inventory of the developer.

As for cash companies with no business I think recently Memstar comes to mind but that one is a bit more complicated that maybe CityFarmer can chime in more. There are quite a few cash companies in the past including a hotel business which I cannot remember now, which I'm sure some VB can refresh our memory. Nonetheless as discussed in other thread there is a floor price for shell companies of around $15m as that seems to be the price for an unencumbered mainboard listed shell.

The only time I can remember stock trades significantly higher than a cash shell with no business is during the dot coms.

(12-05-2015, 10:11 PM)Zip113 Wrote: it just happen jeff also posted on chip eng seng for a technical potential buy in his website for the last 2 days

http://singaporestockstrading.com/2015/0...up-part-2/

I wonder if the TA guru and their followers will cut loss if the 85-84.5c level broken?n trail stop at 84.5c?

Jurong's Westwood Residences eyes lower price strategy as first EC subject to resale levy

By Marissa Lee

SINGAPORE - Westwood Residences, the second executive condominium (EC) in Jurong to launch in 18 years, has unveiled an indicative price of $800 psf, at the lower end of its earlier target price range.

The lower indicative price comes as EC sales have generally weakened since measures such as stricter mortgage loan rules were introduced to cool the sector in Dec 2013.

Westwood Residences, developed by Koh Brothers and Heeton Holdings, will be the first EC project where buyers who have already bought an HDB flat or EC will be subjected to a resale levy.

The attractive pricing will curb "wait-and-see" behaviour from buyers who have become more price-sensitive, said PropNex Realty chief executive Mohamed Ismail, who is marketing the project, at a media briefing on Wednesday.





Last October, Evia Real Estate's highly-subscribed Lake Life EC in the Jurong lake district went for sale at an average of $857 psf, and was a near sell-out.

Westwood's developers have worked out that the new levy costs resale buyers about $40 psf to $50 psf.

At $800 psf, resale buyers and upgraders will be compensated indirectly in the form of a discount, while first time buyers get to enjoy a subsidy, said Mr Ismail.

The 480-unit 99-year leasehold project is located within the private Westwood estate and is four bus stops away from Boon Lay MRT.

Westwood Residences is also Singapore's first-ever bike-themed development.

Upwards of $1.5 million has been spent on sports-themed lifestyle offerings, including an outdoor mini velodrome and a bicycle garage that can house 500 bicycles, secured by a biometrics system.

Koh Brothers managing director and group chief executive Francis Koh said: "There is a lot of attention on Jurong now, and the bicycle theme differentiates us from other condos and ECs."

ECs are a public-private housing hybrid where buyer eligibility is restricted to Singaporeans, with a minimum five year occupation period before the unit may be sold in the open market.

Westwood Residences show flats will be open for viewing on May 15 and bookings for the units begin on May 30.
- See more at: http://www.straitstimes.com/news/busines...rtnlc.dpuf

What will you do if you have money and qualified to buy any of these

Buy private condo for 1000psf or buy an EC at sub 800psf?

EC only five years later can sell in market as private condo due to MOP.

Private condo no MOP but got stamp duty for 4 years, effectively act as a lock up.

Holding period of 1 year : 16% of price or market value, whichever is higher
Holding period of 2 years : 12% of price or market value, whichever is higher
Holding period of 3 years : 8% of price or market value, whichever is higher
Holding period of 4 years : 4% of price or market value, whichever is higher

Which one will you choose?

Choice is obvious in my view as 4 years wait or 5 years wait doesn't make a different. It effectively froze up the suburban condo market. As price of EC are adjusting lower,it act as a nature pull for the selling price of private condo. EC owner got a head start of 200 psf when the 5 years mop is up. The capital outlay is also lower thus higher return on capital. Due lower purchase price,ec are in a better position to fight a price war and rental war after 5 years.

2 cents worth,food for thot

there is something known as "stop-loss" hunting.

I suspect 80 cent level might act as a natural draw to that level, albeit a brief one. As explained earlier, yield of 5% if price drops to 80 cents and so on.

tks.

(17-03-2015, 10:02 AM)westin1 Wrote: Thanks jjlim84 .... if ces is so good, price wont stay stagnant like this.... look at ho bee to see how low it can go....

(14-05-2015, 01:54 PM)CCUV Wrote:

(12-05-2015, 10:11 PM)Zip113 Wrote: it just happen jeff also posted on chip eng seng for a technical potential buy in his website for the last 2 days

http://singaporestockstrading.com/2015/0...up-part-2/

I wonder if the TA guru and their followers will cut loss if the 85-84.5c level broken?n trail stop at 84.5c?

CES might find it hard to do share buyback when there are no huge chuck of sellers....

(14-05-2015, 01:20 PM)Teletubby Wrote: Pardon me, but I don't get your point at all. CES is a property development cum construction cum hospitality company, shouldn't we value such companies using a SOTP approach? I see nothing wrong in valuing the property development segment using the RNAV approach, of course we can argue about the appropriate discount to the RNAV.

As for your working capital point, I don't get your pun too. According to Investopedia, working capital is defined as current assets less current liabilities. Aren't these numbers from the balance sheet? Of course if you are trying to look deeper, yes indeed cold hard cash is tied up in the business for the purpose of generating profits. But generally, most business have their cash tied up for these purposes, regardless of whether they are a manufacturing company or oil company etc. If you use the ROIC in place of the ROE to analyse the profitability, you are neglecting management's ability to use debt suitably to boost profits of the shareholders. Not too useful in my view.

Most VBs here are past investment 101 stage. Suffice to say that businesses runs on cashflow, not how it is being booked on an accounting basis. Accounting is a shadow of reality, take it as a reference, not the truth, when you analyse. Based on investopedia definition, current portion of long term debt suddenly becomes part of working capital equation when it crosses 365 days due date? I offer you another definition from cashflow analysis: It is the cash needed to run the operations of your on-going and hopefully expanding business including A/P and inventories; a subset of operating cashflow. OTOH debt, whether long or 365 days short term, is financing cashflow. Ponder whether negative working capital is good or bad thing.

Of course most companies have working capital, the difference is the degree. And developers need a lot more. If your cash is tied you can't pay dividends or share buy-backs as much as you would want.

Value investors look at ROIC for intrinsic cashflow returns ie how much cashflow can be generated for the capital that you put up. ROE can be engineered.

I was giving you an example on the cash company. As usual things are not as simple as textbook... roughly 15% discount thereabout by observation. Recently there has been a lot of RTO hence there is a certain RTO option built by Mr Market. But the logic is simple: OPMI does not have access to the cash which is why Mr Market gives it around 15% discount in case it gets delisted or payouts to employers or directors "increases". A bird in hand is different from a bird in the major shareholder's garden bush.