According to a Tuesday report by analyst Carmen Tay, most of the group’s residential projects have substantially been sold and together with a construction net order book of $538.4 million as at end 2Q17, Chip Eng Seng has locked in at least $1 billion in sales which will be recognised progressively, underpinning strong earnings visibility in the coming years. In addition, the award of a recent tenders at Woodleigh and Changi should boost the group’s earnings and NAV in the medium term.
Meanwhile, the group has also built up a sizeable hotel and commercial portfolio. The jewel is Park Hotel Alexandra, which is recorded in its books at an $210 million or $475,000/key. However, its potential realisable value if sold off could be as high as $376 million or $850,000/key, which means a further 27 cents upside to current NAV.
While the hotel provides stable recurring cash flows to the group, substantial value could be unlocked given the robust demand for hotel assets in Singapore, says Tay.
“Chip Eng Seng currently trades at a substantial 52% discount to our RNAV of $1.88 and at just 0.7x P/NAV,” says the analyst, “Assuming a conservative 45% discount to RNAV and valuing its construction business at peers’ average of 8 times FY18 times earnings, we arrive at a SOTP-based target price of $1.18.”
Shares in Chip Eng Seng are trading 4 cents higher at 94 cents or 17 times FY17 earnings with a potential yield of 4.4%.
