Chip Eng Seng

[slowandsteady]

For MOS, I look mostly at these few items, which give me "good sleep":

1. Discount to RNAV
- My estimate for Low Keng Huat is $1.57, currently around 52% discount. For KSH Holdings, RNAV estimate of $1.15, meaning discount of 55%.
- CES estimated RNAV of $1.66 gives me 41% discount.

2. Insider Share Repurchases near my entry
- $0.67-0.68 for LKH, and $0.51-0.53 for KSH. Makes me feel comfortable.
- CES gives me the same comfort here.

3. Significant Upcoming Catalysts
- LKH has Paya Lebar Central coming up next month, and KSH has a large number of highly sold projects for profit recognition.
- Similar for CES.

4. Good Management team and solid Track Record
- Comfortable with both LKH and KSH.
- A little worried about the departure of Raymond Chia.

In conclusion, it's the closing RNAV gap that prompted me to rebalance, and also not wanting to cough up extra cash for now. Hope that helps

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

[Teletubby]

Some of us might have placed too much weight on one person - the CEO. This is one of the major fallacies in investing. Let us also remember that for CES to come so far, from a sub contractor to a main contractor, then to a design and build developer, then partnering with more experienced and richer players to develop property, and then finally venturing out on her own with stellar results to show, it is not the effort of just one man.

Furthermore, ex-CEO Raymond Chia's replacement, Mr Hoon Tai Meng, was one of the first directors to join CES (c. 1999). His wealth of experience is equal to, if not more than Mr Chia. I am sure that he will bring CES to greater heights than his predecessor, whom we agree is very talented.

When CES finally gets its recurring income base in order and becomes an integrated property developer, we are likely to see an upward revision in the PE ratio of this company. Further upside to all the lucky shareholders.

(vested since 2010)

[BfGf Money Blog]

Some of us might have placed too much weight on one person - the CEO. This is one of the major fallacies in investing. Let us also remember that for CES to come so far, from a sub contractor to a main contractor, then to a design and build developer, then partnering with more experienced and richer players to develop property, and then finally venturing out on her own with stellar results to show, it is not the effort of just one man.

Furthermore, ex-CEO Raymond Chia's replacement, Mr Hoon Tai Meng, was one of the first directors to join CES (c. 1999). His wealth of experience is equal to, if not more than Mr Chia. I am sure that he will bring CES to greater heights than his predecessor, whom we agree is very talented.

When CES finally gets its recurring income base in order and becomes an integrated property developer, we are likely to see an upward revision in the PE ratio of this company. Further upside to all the lucky shareholders.

(vested since 2010)

Hi Teletubby, is the recurring income significant and where is it coming from?

[BfGf Money Blog]

Thank you Ray 168. I am just a simple investor. To me, DEBT=BAD. High Debt = VERY VERY BAD.

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?

[Curiousparty]

1. Park Hotel
When hotel TOPs in mid-2015, it will be passed over to Park Royal Group for management.
$105 (per room per day) x 450 (capacity) x 365 days x 0.83 (tax rate) = $14.3 mil (net income per year)

2. Refurbished San CES Centre
Rental income = 131 895 Sq Ft (GFA) x 0.8 (8 floors out of 10 will be rented out) x 0.9 (efficiency factor) x $6 PSF per mth x 12 mths x 0.83 (tax rate) = $5.7 mil (net income per year)

3. St Kilda Rd - Office Bridling in CBD Melbourne
Rental income = 8% (rental yield) x A$45.3 mil x 1.06 (exchange rate) x 0.83 = $3.2 mil (net income per year)

4. Old HQ at Ubi & shop houses at Geylang
$1 mil per year

5. New investment property (TBC)
5% x 150mil x 0.83 = $6.2 mil per annum.

- Total rental income from above 5 investment properties = $30.4 mil per year or 4.8 cents EPS

- The above rental income from investment properties coupled with the usual 4 cents EPS from construction arm (per year).

~ 9 cents of recurring income at steady state.

Some of us might have placed too much weight on one person - the CEO. This is one of the major fallacies in investing. Let us also remember that for CES to come so far, from a sub contractor to a main contractor, then to a design and build developer, then partnering with more experienced and richer players to develop property, and then finally venturing out on her own with stellar results to show, it is not the effort of just one man.

Furthermore, ex-CEO Raymond Chia's replacement, Mr Hoon Tai Meng, was one of the first directors to join CES (c. 1999). His wealth of experience is equal to, if not more than Mr Chia. I am sure that he will bring CES to greater heights than his predecessor, whom we agree is very talented.

When CES finally gets its recurring income base in order and becomes an integrated property developer, we are likely to see an upward revision in the PE ratio of this company. Further upside to all the lucky shareholders.

(vested since 2010)

Hi Teletubby, is the recurring income significant and where is it coming from?

[BlueKelah]

1. Park Hotel
When hotel TOPs in mid-2015, it will be passed over to Park Royal Group for management.
$105 (per room per day) x 450 (capacity) x 365 days x 0.83 (tax rate) = $14.3 mil (net income per year)

2. Refurbished San CES Centre
Rental income = 131 895 Sq Ft (GFA) x 0.8 (8 floors out of 10 will be rented out) x 0.9 (efficiency factor) x $6 PSF per mth x 12 mths x 0.83 (tax rate) = $5.7 mil (net income per year)

3. St Kilda Rd - Office Bridling in CBD Melbourne
Rental income = 8% (rental yield) x A$45.3 mil x 1.06 (exchange rate) x 0.83 = $3.2 mil (net income per year)

4. Old HQ at Ubi & shop houses at Geylang
$1 mil per year

5. New investment property (TBC)
5% x 150mil x 0.83 = $6.2 mil per annum.

- Total rental income from above 5 investment properties = $30.4 mil per year or 4.8 cents EPS

- The above rental income from investment properties coupled with the usual 4 cents EPS from construction arm (per year).

~ 9 cents of recurring income at steady state.

Some of us might have placed too much weight on one person - the CEO. This is one of the major fallacies in investing. Let us also remember that for CES to come so far, from a sub contractor to a main contractor, then to a design and build developer, then partnering with more experienced and richer players to develop property, and then finally venturing out on her own with stellar results to show, it is not the effort of just one man.

Furthermore, ex-CEO Raymond Chia's replacement, Mr Hoon Tai Meng, was one of the first directors to join CES (c. 1999). His wealth of experience is equal to, if not more than Mr Chia. I am sure that he will bring CES to greater heights than his predecessor, whom we agree is very talented.

When CES finally gets its recurring income base in order and becomes an integrated property developer, we are likely to see an upward revision in the PE ratio of this company. Further upside to all the lucky shareholders.

(vested since 2010)

Hi Teletubby, is the recurring income significant and where is it coming from?

From a cursory glance and without even analysing deeper, figures for recurring EPS look like a bloated estimate at best. It would be better to give newbies a better sense with more conservative picture.

For hotel, does the $105/rm/day include management fees to park royal group? Will alexandra hotel have 100% occupancy, fully booked all year?

Sans center also assumes 100% occupancy?

Furthermore, what sort of construction contracts are coming in for construction arm? Given the downturn in property sector in Singapore? Likely 4c will be much reduced.

The switch to income mode rather than developer mode, more debt will need to be added. How sustainable the debt is when interest rates do eventually rise is a risk to consider.
Unlike HLS or WeeHur, CES does not have any spare cash to throw around and is neck deep in debt at the moment.

[NTL]

Hi Curiousparty,

Even if CES can get 9cents of recurring income, how about the associating costs? The interest payment, the admin, maintenance, etc. Surely you need to deduct those before coming out the final number?

Maybe you can add in the estimate of the cost and deduct it away from your 9c?

Thanks.

[RT Knight]

agree. recurring income should deduct those expenses.. a 30% deduction for conservative.

[RT Knight]

http://www.realestate.com.au/project-wil...-600007107
williomsons estate phase 1 estimate to be completed at nov2016..
phase 2 for 2017?

[Teletubby]

This cannot be further from the truth.

Indeed, it is a little unrealistic to expect 100% occupancy for both the hotel and CES Centre, but statistics show the average occupancy for Singapore hotels to be in the high 80%, what more a hotel managed by Park Hotel Group, an old-bird in the hospitality industry?

And is it realistic to expect the room rate for a 4-star hotel of reasonable quality in Singapore to be just $105 per day?? That sounds more like the Hotel 81 rate. ARR for hotels is in the 200 range at the moment. Putting these two facts together, Curiousparty's estimate of the hotel recurring income should be around that figure, after deducting the management fee, which is usually a base fee plus a single digit percentage of revenue.

Currently, investment income for the year is around 6 mil, excluding the contribution from CES centre, which is still in the teething stage the last time i visited a few days ago. The location of the property is good, in the central region and just a few min walk to Chinatown MRT. $6 psf in rental is a reasonable assumption, check the office rents in the Chinatown area - you will get around that figure.

As for new investment properties, the question is not if, but rather when. It was revealed that CES was offered $820k per key for the Alexandra Hotel, but refused the offer, preferring instead to hold the hotel for recurring income. The writing on the wall is clear, management is planning to build up the recurring income base by acquiring good assets at reasonable prices. Judging by their track record, it is highly likely that they will pull this off.

As for construction contracts, CES has been earning about 25-30mil from there in recent years, which is around 4 cents EPS Curiousparty has mentioned. CES is one of the favored HDB contractors, despite the downturn in the private residential market, demand for HDB flats still remains pretty decent. Looking at the current order book of 622 mil, this is certainly sufficient to provide that kind of earnings for the next 2 years at least.

And finally for the debt, much of it is related to the acquisition of land for development properties/investment properties. As of the latest unaudited figures, development properties total 963 mil, and loans and borrowings total 940 mil. We must also look beneath the surface of the high debt and understand why banks are willing to lend so much. Majority of the development projects are substantially sold. It is reasonable to expect that this debt will be repaid once each project is completed, as has been the case in the past. As for the ones for investment properties, the yield on such properties is more than enough to cover the interest on the debt, allowing CES to benefit from the spread. Also it will be worthwhile for us to consider - how much of this debt has a fixed interest, and how many are floaters? Just compute the interest coverage ratio for CES over the past few years, just like other buddies have mentioned, and we can get a sense of how healthy the debt position is for CES.

1. Park Hotel
When hotel TOPs in mid-2015, it will be passed over to Park Royal Group for management.
$105 (per room per day) x 450 (capacity) x 365 days x 0.83 (tax rate) = $14.3 mil (net income per year)

2. Refurbished San CES Centre
Rental income = 131 895 Sq Ft (GFA) x 0.8 (8 floors out of 10 will be rented out) x 0.9 (efficiency factor) x $6 PSF per mth x 12 mths x 0.83 (tax rate) = $5.7 mil (net income per year)

3. St Kilda Rd - Office Bridling in CBD Melbourne
Rental income = 8% (rental yield) x A$45.3 mil x 1.06 (exchange rate) x 0.83 = $3.2 mil (net income per year)

4. Old HQ at Ubi & shop houses at Geylang
$1 mil per year

5. New investment property (TBC)
5% x 150mil x 0.83 = $6.2 mil per annum.

- Total rental income from above 5 investment properties = $30.4 mil per year or 4.8 cents EPS

- The above rental income from investment properties coupled with the usual 4 cents EPS from construction arm (per year).

~ 9 cents of recurring income at steady state.

Some of us might have placed too much weight on one person - the CEO. This is one of the major fallacies in investing. Let us also remember that for CES to come so far, from a sub contractor to a main contractor, then to a design and build developer, then partnering with more experienced and richer players to develop property, and then finally venturing out on her own with stellar results to show, it is not the effort of just one man.

Furthermore, ex-CEO Raymond Chia's replacement, Mr Hoon Tai Meng, was one of the first directors to join CES (c. 1999). His wealth of experience is equal to, if not more than Mr Chia. I am sure that he will bring CES to greater heights than his predecessor, whom we agree is very talented.

When CES finally gets its recurring income base in order and becomes an integrated property developer, we are likely to see an upward revision in the PE ratio of this company. Further upside to all the lucky shareholders.

(vested since 2010)

Hi Teletubby, is the recurring income significant and where is it coming from?

From a cursory glance and without even analysing deeper, figures for recurring EPS look like a bloated estimate at best. It would be better to give newbies a better sense with more conservative picture.

For hotel, does the $105/rm/day include management fees to park royal group? Will alexandra hotel have 100% occupancy, fully booked all year?

Sans center also assumes 100% occupancy?

Furthermore, what sort of construction contracts are coming in for construction arm? Given the downturn in property sector in Singapore? Likely 4c will be much reduced.

T switch to income mode rather than developer mode, more debt will need to be added. How sustainable the debt is when interest rates do eventually rise is a risk to consider.
Unlike HLS or WeeHur, CES does not have any spare cash to throw around and is neck deep in debt at the moment.