Chip Eng Seng

[Teletubby]

Sounds good in theory, but doesn't apply often in practice. Lenders have incentives too, and so do the agents of the lenders. Whether an asset is ultimately productive is sometimes a matter of perspective as it requires a bit of crystal ball gazing, and incentives do distort the perspective of the lenders and their agents; just look back at the most recent sub-prime crisis for an example.

Interesting definition on debt. I reckon all debts are borrowed with a good story e.g. productive asset, otherwise lender will not let go the money, right?

Unfortunately the story might be beyond borrower control, especially so amid the volatility and uncertainty nowadays...

Good or bad debt, should be determined by the structure of the debt, rather the way it is used, IMO

Well said.

A lot of analysts/forummers just methodically compute the debt-equity ratio and then jump to immediate conclusion that CES's gearing ratio is high, without going one step further to analyze the true nature of debt.

Wonder why so weak, results so good yet cant fly... thought this is an undervalued gem but sigh... a pity...

This is called priced in, everyone who is buying property stocks will know about CES and TOP of Alexandra. A bumper 44c EPS and only 6c paid out.

Market is forward looking. Besides expectations of earnings is not very clear on the Aussie side. Had TM gone ahead and to complete on time, stock would definitely have moved more.

not forgetting despite the TOPs, CES debt and gearing is still skyhigh. depending on how interest rate trending as per USA FED, this could pose a big risk.

Change of CEO with such good performance is also quite a big thing. Sure the company can give any good sounding excuse they want but could it signify things in the company not so good such that they had to "golden handshake" first?

For me I classifying the debt as good debt and bad debt.

Bad debt is you loan money to purchase into some unproductive assets:
1. pay urself high salary
2. excess share buy back that aim to push the share price
3. invest to some unproven projects
4. any other bad things that unable to service the loan - u just name it

So, potential bad debt is mainly Australia properties. However, worst scenario just earn less money but not loss money.


Good debt is the one that invested on productive assets:
1. bring more recurring income with profit and able to service the loan
2. projects that bring more profit

CES is very good to manage the debt too. They don't aim to maximize the profit and thus sale it fast which mean offload the risk to buyers (I am sorry to CES buyers if this saddened you, however don't worry, CES never take all the profit...).

Good debt is like Alexandra Hotel & CES centre. Both got recurring income and high capital gain (especially the hotel).

Alexandra Mall & Junction 9 also considered as good debt. Selling and completing fast. No risk to pay the debt.

Do let me know if you spotted any bad debt that I had missed out..

[CityFarmer]

By right, lender will not lend without a good story. Sometimes, the story teller also too good with story telling that bad story also sounds like some hollywood fantasy.

I agree. In short, "story" is a very weak argument for quality of debt.

There was a notice from ICPAS (now ISCA) which says that all loans callable on demand has to be classified as current liabilities, even though repayment more than 12 months later. That also immediately affects the computation of gearing (ie, debt to equity ratio). As such, it goes beyond that "good story" and the user has to understand how basis of the figures used to compute gearing.

Though... for the many, the substance of loan callable on demand (imo) is still a long term loan.

That warrant a holistic view on each investment, rather focuses on only one fundamental in due diligence.

IMO, absolute ratio is not very meaningful. Benchmarking among peers will bring out more insight of a company. Of course, I assume comparing apple to apple, rather than apple to orange.

(sharing and learning)

[RT Knight]

gearing ratio is always a worried element for CEL.
For the Alex Central cash inflow back, and the revaluation of Alex Hotel which help to boost Equity value, would these help to improve gearing ratio? isn't that 2015 would be a better CES?

[vesfreq]

By right, lender will not lend without a good story. Sometimes, the story teller also too good with story telling that bad story also sounds like some hollywood fantasy.

I agree. In short, "story" is a very weak argument for quality of debt.

There was a notice from ICPAS (now ISCA) which says that all loans callable on demand has to be classified as current liabilities, even though repayment more than 12 months later. That also immediately affects the computation of gearing (ie, debt to equity ratio). As such, it goes beyond that "good story" and the user has to understand how basis of the figures used to compute gearing.

Though... for the many, the substance of loan callable on demand (imo) is still a long term loan.

That warrant a holistic view on each investment, rather focuses on only one fundamental in due diligence.

IMO, absolute ratio is not very meaningful. Benchmarking among peers will bring out more insight of a company. Of course, I assume comparing apple to apple, rather than apple to orange.

(sharing and learning)

You are right. The absolute ratio is then a result of reporting standards being kiasu and kiasi, which then is misleading again to users.

The other day, the other a practising public accountant was questioned that if loan is callable on demand, wouldn't it make the weak current ratio put into question the going concern assumption? His answer was, can ask banker to waive the clause..... then he had a disclaimer "bankers not likely to entertain this also".

Yup, still gotta go back to looking at the counter as a whole, rather than a series of parts. Quality of management still matters on top of the figures.

[Curiousparty]

You are right. The revaluation gain from commissioning of Alex Park Hotel would boost the equity base by ~30 cents. This should lead to a substantial drop in Debt-Equity Ratio (the usual silly matrix used by many).

gearing ratio is always a worried element for CEL.
For the Alex Central cash inflow back, and the revaluation of Alex Hotel which help to boost Equity value, would these help to improve gearing ratio? isn't that 2015 would be a better CES?

[Ray168]

IMO, Leverage ratio should be read in conjunction with Interest Cover.

For CES case, interest cover is super high... 73X.

Last year FY2013 was 42X

With such a high interest cover, CES will have no problem to pay the interest and bank will never recall their loan.

You are right. The revaluation gain from commissioning of Alex Park Hotel would boost the equity base by ~30 cents. This should lead to a substantial drop in Debt-Equity Ratio (the usual silly matrix used by many).

gearing ratio is always a worried element for CEL.
For the Alex Central cash inflow back, and the revaluation of Alex Hotel which help to boost Equity value, would these help to improve gearing ratio? isn't that 2015 would be a better CES?

[slowandsteady]

Have decided to take profit on the other half of my CES stake, holding period around 9 months. Reason is to move capital to KSH for larger MOS. Wish buddies here all the best, will keep CES on my watchlist - definitely a solid co.

With this switch my property stock holdings are now concentrated in LKH & KSH, around 65/35 split.

(Fully divested)

I am invested in CES for sometime now but after this earnings, the pipleline for 2015 onwards doesn't offer much visibility. The resignation of its Director and its debt are definitely a concern.

BUT - the aggressive sharebuyback of its management could indicate that they are extremely confident about the company's prospects?

I might probably sell half of my stake in CES.

As much as I thank CES for their good returns these few years, I probably won't touch property stocks again!

[BfGf Money Blog]

Hi Ray 168, how did you calculate the interest cover from CES 2014 expenses? Noob investor here, trying to learn

IMO, Leverage ratio should be read in conjunction with Interest Cover.

For CES case, interest cover is super high... 73X.

Last year FY2013 was 42X

With such a high interest cover, CES will have no problem to pay the interest and bank will never recall their loan.

You are right. The revaluation gain from commissioning of Alex Park Hotel would boost the equity base by ~30 cents. This should lead to a substantial drop in Debt-Equity Ratio (the usual silly matrix used by many).

gearing ratio is always a worried element for CEL.
For the Alex Central cash inflow back, and the revaluation of Alex Hotel which help to boost Equity value, would these help to improve gearing ratio? isn't that 2015 would be a better CES?

[jjlim84]

Have decided to take profit on the other half of my CES stake, holding period around 9 months. Reason is to move capital to KSH for larger MOS. Wish buddies here all the best, will keep CES on my watchlist - definitely a solid co.

With this switch my property stock holdings are now concentrated in LKH & KSH, around 65/35 split.

(Fully divested)

I am invested in CES for sometime now but after this earnings, the pipleline for 2015 onwards doesn't offer much visibility. The resignation of its Director and its debt are definitely a concern.

BUT - the aggressive sharebuyback of its management could indicate that they are extremely confident about the company's prospects?

I might probably sell half of my stake in CES.

As much as I thank CES for their good returns these few years, I probably won't touch property stocks again!

Hi slowandsteady, mind explaining more in detail why LKH/KSH have larger MOS than CES? Is it just because of the debt?

Since they are all construction/property stocks, some comparison would be beneficial to all of us I think

[Ray168]

Interest Coverage = (Profit Before Interest and Tax/Interest Expense)

(323,676 + 4,453) / 4,453

= 73.69

*Interest Expense = Finance Costs

Hi Ray 168, how did you calculate the interest cover from CES 2014 expenses? Noob investor here, trying to learn

IMO, Leverage ratio should be read in conjunction with Interest Cover.

For CES case, interest cover is super high... 73X.

Last year FY2013 was 42X

With such a high interest cover, CES will have no problem to pay the interest and bank will never recall their loan.

You are right. The revaluation gain from commissioning of Alex Park Hotel would boost the equity base by ~30 cents. This should lead to a substantial drop in Debt-Equity Ratio (the usual silly matrix used by many).

gearing ratio is always a worried element for CEL.
For the Alex Central cash inflow back, and the revaluation of Alex Hotel which help to boost Equity value, would these help to improve gearing ratio? isn't that 2015 would be a better CES?