Chip Eng Seng

The recent contract wins have increased the order book quite significantly. If ces could maintain the margin by managing cost well, shareholders could expect good dividend to continue.

Vested.

Those who like Chip Eng seng should look at Low Keng Huat as well

(09-09-2012, 12:36 AM)propertyinvestor Wrote: Those who like Chip Eng seng should look at Low Keng Huat as well

Due to limited resource, I will choose ces. The company is developing hotel which will contribute as a new future income stream. Plus a healthy order book for its traditional construction business segment, earnings in the next few years should be ok.

I am interested in any different opinion.

(09-09-2012, 09:52 AM)Share Investor Wrote:

(09-09-2012, 12:36 AM)propertyinvestor Wrote: Those who like Chip Eng seng should look at Low Keng Huat as well

Due to limited resource, I will choose ces. The company is developing hotel which will contribute as a new future income stream. Plus a healthy order book for its traditional construction business segment, earnings in the next few years should be ok.

I am interested in any different opinion.

Fair enough

I would divide into both. Since LKH may have another possible takeover offer attempt.

If limited resources, would focus on LKH. LKH has rather low risk as majority of its projects are sold and thus cash flow secured. Future recurrent income from 2 hotels, F&B biz and new retail space at Paya Lebar Sq. CES still at infancy stage when come to recurrent income, higher execution risks... my opinion...

(09-09-2012, 05:18 PM)bookworm Wrote: If limited resources, would focus on LKH. LKH has rather low risk as majority of its projects are sold and thus cash flow secured. Future recurrent income from 2 hotels, F&B biz and new retail space at Paya Lebar Sq. CES still at infancy stage when come to recurrent income, higher execution risks... my opinion...

Yes, LKH is indeed enjoying the recurring income.

Anyone knows company's order book? The last time it announced winning a contract was in May 2011.

Construction companies badly affected by tightening foreign workers controls and higher levies. So, assessment of current order book cuts both way.

(09-09-2012, 06:32 PM)bookworm Wrote: Construction companies badly affected by tightening foreign workers controls and higher levies. So, assessment of current order book cuts both way.

Ces management will have to demonstrate their ability to adapt to changing circumstances. One aspect of value investing is quality management.

(09-09-2012, 06:32 PM)bookworm Wrote: Construction companies badly affected by tightening foreign workers controls and higher levies. So, assessment of current order book cuts both way.

Construction companies has their way around it. As Ive come to reallise, many of them are now quoting higher prices in their contract tenders to price in the possible increase in labour cost.

They can also apply to the BCA for grants to increase their productivity.

Margins are likely to be double digits.

Chip Eng Seng's construction order are largely driven by either HDB contracts or internal property development.

There will be a surge in construction orders from HDB - largely BTO flats. However, HDB project margins always tend to be very thin; around single digit margins. A look at CES's historical segment performance shows that its construction segment has been making losses from 2007 to 2009. It return to profit in 2010 with a OPM of 8%. In 2011, OPM surged to 44%. I am not aware of the reason for the surge but based on past records, it's likely to be non-recurring.

Qualitatively-speaking, the low margin construction business is also the reason why many construction companies are shifting towards property development as well. If margins are so good at double-digits, then construction companies should focus on construction business alone.

I've taken a look at CES. I got to say their dividend yield is really attractive. At 47.5c, implied yield is around 8.4%. Such dividend payment has been such in 2010 and 2011. However, what's contradicting it is the negative Net Op CF. This means that dividend payment is likely to be financed by debt. I do admit that the recent adoption of INT FRS 115 has kinda messed up the historical comparison. But even before the adoption in 2010, Net Op CF hasn't been impressive.

Significant property project in the future is likely to be its freehold Fulcrum condo and its Park Hotel development. Margins are high for Fulcrum with my estimations at around 40% but there is probably more uncertainty in selling it off. Other property developments are more or less completed. My estimated GPMs for the projects are as such: Prive (5%), My Manhattan (30%), Belysa (11%), Belvia (5%). Seem like the near future will be the recognition of sales from these projects - based on the completion accounting method.

*Edit: changed my estimated margins - RNAV model had a slight mistake