Chip Eng Seng

[BlueKelah]

As for Tower Melbourne, even in the worst case whereby the project gets cancelled, only the profits will be forgone be since the land still has value, CES won't be losing much. CES, has clauses in the contract that prevent them from paying any compensation to the buyers of TM in the event where the project doesn't go through.

Not only profits forgone, there should be some cost associated with the marketing of the project as well as any agent's commissions already paid out if any were used. And some cost for development application and hire of contractors/staff to prepare for the project.

True, but I think it is negligible compared to the land value. In any case, CES management has stated that in the unlikely event that they lose the case, they could convert the building to a hotel, which would enable them to obtain double digit yield. So in any case, CES won't be suffering a drop in NAV if the project doesn't go through, no destruction of value there.

From my research, it seems they have actually ended the case as it was being held in court during april. Whether chow family will appeal again is another thing. There must be some other legal stuffs as demolition is currently still delayed, else you would get a nice proud update that "works have recommenced".

There will be a cost for converting to hotel as if you are in melbourne now you can see that 150 queen street building is a "bomb site" Not sure how much they will need to rebuild it into a nice hotel. Picture i found from another forum discussing this development taken in Jan 2014.

[Image: 4E9AB13D-EEB7-4E79-A52A-70378E252C87.jpg]

Main thing is Tower Melbourne is still a risk. Share price wise, as the sales of TM are already most likely partly reflected in the recent high stock prices, any confirmation of the project being cancelled will definitely affect price in the short term and may cause the stock to languish.

Just like short term wise, if the demolition gets back on track, stock price will surely move upwards by quite a bit.

[Curiousparty]

just think from a very layman's pt of view.

If u are the CEO of the company, will u approve share buyback at ave price of 75.5 cents (few millions shares) when u think the current share price has already factored in all the shareholder value creation of all the projects yet to be recognized on books?

Share buyback is the best indication the company can give to all its loyal shareholders (IMHO).

We just have to wait and see, don't need to speculate this or that, whether share price already factored in this or that projects already, etc.
the company share price performance in the next few quarters will speak for itself (IMHO)

The TM project will proceed eventually. We have to trust the "skills" of the company

Agree that there are many other undervalued counters. BUT it is hard to find another counter that grows its NAV at such an amazing pace. One Alex project covers its entire market cap. Speed is a very important consideration too (IMHO)
It is the pace of shareholder value creation that is going to capture the entire market by surprise !!!

[sykn]

Hi all, after reading this thread of positive postings, I went back to take a closer look at the annual reports of the past 5 years for CES. One thing that jumps out from my analysis is that the net income seems to be shrinking the last 3 FYs; on closer examination I realized that most of the money went into the working capital of which the largest item is "development projects". Under this category, I found that the amount for this item in FY13 was 5.5 times that in FY09. I'm no expert in evaluating a property developer, but doesn't this mean that should the property market fall, CES would end up with a lot of unsold properties? Would someone more learned than I in this forum please comment on a novice's observation, please? Thanks.

[BlueKelah]

Hi all, after reading this thread of positive postings, I went back to take a closer look at the annual reports of the past 5 years for CES. One thing that jumps out from my analysis is that the net income seems to be shrinking the last 3 FYs; on closer examination I realized that most of the money went into the working capital of which the largest item is "development projects". Under this category, I found that the amount for this item in FY13 was 5.5 times that in FY09. I'm no expert in evaluating a property developer, but doesn't this mean that should the property market fall, CES would end up with a lot of unsold properties? Would someone more learned than I in this forum please comment on a novice's observation, please? Thanks.

Gearing up to high levels is normal for property developers. That is why once they commence building a project, any delays could be costly for them (just like for Tower M) I would think construction crews and contractors have to be paid and interest will have to be paid for loans, etc.

Whilst they are building the big projects, income can be decreasing as profits are often not recognized until TOP time. For CES, this TOP time which the positive posts have been talking about should occur sometime later this year.

I was just cautioning buddies unfamiliar to property counters that even though large income is coming in, should the TM project which is quite substantial gets delayed further or cancelled, it will be a drag on share price.

Melbourne property cycle has peaked for the moment, any further uptrend will depend on decrease in interest rates locally or more investment from China. It is well known that the town planner there actually approved 5 other big apartment projects in a week which will very possible contribute to a glut in 2-3 years time. Should the apartment market there be depressed 20-30%, CES would definitely have buyers walking out as you only lose 10% of deposit if apartment is completed and you don't want it, much like what has happened with the apartment craze in Gold Coast quite a few years back.

[Curiousparty]

let's go into the specific numbers

How much will it cost CES based on the following scenarios?

1. delay of 1 year
2. delay of 2 years
3. total cancellation of project?

Cld someone give me all the numbers, and I will do an objective assessment based on real specific numbers and not empty talks

It took CES last 30 years to build up to its current market cap of around half a billion and it takes just one single project (i.e. Alex Central) to grow by another half a billion (in around 3 yrs). If this is not shareholder value creation at super lightning pace, "I don't know what to say" (hehe...sounds familiar)...

Can someone here help me find another company in SGX that will grow its shareholder equity (or NAV) by 100% in 3 years ?
many tks for the help

[BlueKelah]

let's go into the specific numbers

How much will it cost CES based on the following scenarios?

1. delay of 1 year
2. delay of 2 years
3. total cancellation of project?

Cld someone give me all the numbers, and I will do an objective assessment based on real specific numbers and not empty talks

It took CES last 30 years to build up to its current market cap of around half a billion and it takes just one single project (i.e. Alex Central) to grow by another half a billion (in around 3 yrs). If this is not shareholder value creation at super lightning pace, "I don't know what to say" (hehe...sounds familiar)...

Can someone here help me find another company in SGX that will grow its shareholder equity (or NAV) by 100% in 3 years ?
many tks for the help

I am not familiar calculating costs over-run for delayed/cancelled property projects. Maybe some other buddy has an idea and can calculate the potential impact?

Valution wise, do note 3 years back CES traded at 35-40cents, now its doubled 81 cents which could be the adjustment Mr. Market has given CES. Property counters often trade at a discount to NAV.

The recent property boom has seen quite a few property companies double their NAV in 3 short years. The recently delisted Superbowl is one company on the SGX that had doubled NAV in these 3 years. IIRC Hongfok and Hobee have also had their NAV doubled these past few years. I am sure other valuebuddies more familiar with property counter can give more examples.

Also the projected RNAV is different from what is finally reflected on the financial reports, it is just an estimate.

[Curiousparty]

Of course, we are just doing very conservative projection here. Applying a hefty 40% discount to RNAV of $1.80 (conservative) , it is still easily more than $1.
No wonder company was aggressively doing share-buyback and they might do it again post 2014-Q2 results

Don't forget we still have recurring income from the following probably easily (roughly $20~$25mil per annum)
a. San Centre
b. St Kilda office building
c. Alexandra hotel

Before Alex central came into the picture, CES has been maintaining a dividend of 4 cents per annum for last few years. Probably, CES might increase the annual dividend payment to 6 cents per annum from FY14 onwards

it is a double win for Alex central because u get upward revaluation gain plus the recurring income to milk. It is better to keep the hotel and milk the recurring income. It just takes about 12 years to break down.

[Curiousparty]

it would be better for CES to keep the hotel and milk the hotel rental (~$16.4mil per year) via arrangement with Park Hotel Group.
it would stabilize its EPS and increase its valuation (IMHO).

This way, u get to enjoy best of both worlds. Revaluation gain (tax-exempt) that goes to increase NAV plus the $16mil net income every year.

Derivation of $16.4 mil:-
1. 450 rooms
2. base rate of $100 per room
3. 365 days

Basis - When UE sold its BizHub East to Vivo Reit, it leased back Park Ave Hotel at $95per room per day. The rate increase to $105 from 6th year onwards. This gives a clue on how much Park Hotel would pay CES to secure the management contract.

Assuming the hotel segment cost $200mil in total cost (land + construction + others), it only needs 12 to 13 yrs to breakeven.

So, it is Revaluation Gain plus "Milking of Hotel Room Rental".

If the new hotel at alex central is sold, try to imagine the windfall profits!!!

[Curiousparty]

http://financials.morningstar.com/ratios...ture=en-US


NAV growth (shareholder value creation per unit share)
2004 - 12 cents (equity - $68.4mil)
2014 Q1 - 81 cents (equity - $517mil)
2018 - ~$2 (market cap - ~$1.3 bil)

if based on NAV , it would be ~575% increase over 9 years (2004 - 2014 Q1)

if based on market cap , it would be ~656% increase over the same period.

From 2014Q1 to 2018, NAV would likely reach $2 at least. (another 150% growth starting from 2014 Q1), from a market cap of $517mil to reach a market cap of ~$1.3bil by end 2018.

(Emptor caveat)

let's go into the specific numbers

How much will it cost CES based on the following scenarios?

1. delay of 1 year
2. delay of 2 years
3. total cancellation of project?

Cld someone give me all the numbers, and I will do an objective assessment based on real specific numbers and not empty talks

It took CES last 30 years to build up to its current market cap of around half a billion and it takes just one single project (i.e. Alex Central) to grow by another half a billion (in around 3 yrs). If this is not shareholder value creation at super lightning pace, "I don't know what to say" (hehe...sounds familiar)...

Can someone here help me find another company in SGX that will grow its shareholder equity (or NAV) by 100% in 3 years ?
many tks for the help

I am not familiar calculating costs over-run for delayed/cancelled property projects. Maybe some other buddy has an idea and can calculate the potential impact?

Valution wise, do note 3 years back CES traded at 35-40cents, now its doubled 81 cents which could be the adjustment Mr. Market has given CES. Property counters often trade at a discount to NAV.

The recent property boom has seen quite a few property companies double their NAV in 3 short years. The recently delisted Superbowl is one company on the SGX that had doubled NAV in these 3 years. IIRC Hongfok and Hobee have also had their NAV doubled these past few years. I am sure other valuebuddies more familiar with property counter can give more examples.

Also the projected RNAV is different from what is finally reflected on the financial reports, it is just an estimate.

[Curiousparty]

DMG just initiated a buy on CES.

TP = $1.07
(30% discount to RNAV).

IMHO, the profit forecast are way too conservative, based on very benign assumptions in the following aspects:-

a. Royal Group already paid $1.03mil per key for Gallery Hotel (4-star) at River Valley Area last year. If $0.8mil per key is assumed, valuation would have been $90mil lower or 14 cents. (at least they did better than Phillip Research who assumed a meager $0.5mil per key)
http://www.bloomberg.com/news/2014-04-28...state.html

b. Other than valuation gain, there are recurring income to be milked from all these investment property. ~$21mil/yr or 3.3 cents EPS/yr

c. Alex retail mail profit ($115mil, the lowest I have seen so far amongst all the estimates) seemed to be on the very low side. not sure the cost of construction assumed. Its unit cost cannot be higher than unit cost of hotel room. My very conservative estimate was around >$250mil. need to remember that CES was selling right smack at the PEAK of the commercial property craze. 20 people to 1 retail unit.

d. Similarly, Junction 9 profit estimates seemed to be on the low side too.

e. none of the overseas projects accounted for.

On top of all these benign assumptions, they further applied a 30% discount on the RNAV. So it is super conservative final figure.

In any case, let's wait for CES actual results over the next few quarters.
It might just take the whole market by storm (IMHO)

*************
Enter Chip Eng Seng
This week, we feature Chip Eng Seng (CES), which evolved from its contractor background into an integrated developer in the last decade. CES rode the last property cycle and raked in a combined net profit of some SGD300m during 2010-11, boosting shareholders’ equity by 2.5 times over that two years.

Looking ahead, we think CES is poised for another record run over the next two years as several of its residential and mixed development projects in town reached completion or T.O.P. The group obtained T.O.P for its industrial project 100 Pasir Panjang and condominium project My Manhattan in the first quarter of this year, and is on track to complete Belysa (EC project), Belvia (DBSS project) and Alexandra Central retail in the course of 2014. In 2015-16, the group will complete its mixed development project at Yishun (Junction Nine/Nine Residences), its Alexandra Road hotel and Fulcrum, a mid-market residential project. With the exception of Fulcrum, CES’ other projects are substantially sold with healthy margins. For its hotel at Alexandra Central, the group has appointed Park Hotel Group as the hotel manager. Against a development cost of SGD208m, cost per room works out to SGD460,000 for the 450-room hotel. Given the recent transactions of 3-4 star hotels in the city fringe, we believe CES’s hotel is easily worth at least SGD360m based on SGD800,000 per key. This implies a potential revaluation surplus of SGD152m.

On the development front, we expect CES to generate net profit of SGD260m, or SGD0.40/share from its pre-sold projects. The bulk of the profit contribution comes from two mixed development projects. The first one is the strata-titled retail units at Alexandra Central, which sold between $4000-8000 psf at the height of the craze for commercial properties in early 2013. Net profit from the development alone will contribute SGD114m, by our estimates. The second project, Junction Nine and Nine Residences in Yishun, should gross over SGD86m when completed in 2015/16.

Recognizing the challenging conditions in the Singapore residential market with high land costs and softening property prices, CES expanded on its overseas business last year, acquiring two development sites in Melbourne and a mixed development site in downtown Malacca. Meanwhile, its existing project in Australia, Tower Melbourne, has achieved a 99% sales rate as at end 2013. We have not factored in any potential contribution from its overseas projects until more launch data are available.

Combined with development profits and revaluation surplus from its Singapore portfolio, and attributing a 8x P/E multiple for its profitable construction business, we derive a RNAV of SGD1.63 for the stock. At SGD0.81, CES trades at more than 50% discount to its RNAV and offers an attractive yield of 5%. Applying a 35% discount to its RNAV, we believe the stock is worth SGD1.07. Stock buybacks and delivery of record earnings over the next several quarters should act as catalysts for the stock
price.