Chip Eng Seng looks poised for take-off

IN a property market where heavyweights such as CapitaLand and City Developments are in the limelight, a relatively small company like Chip Eng Seng Corporation appears to have escaped the attention of most analysts.

Although earnings in recent years have varied – from as low as S$57.2 million in 2015 to as high as S$280.7 million in 2014 – the group has been quietly putting its chess pieces in play and is worth a closer look.

Chip Eng Seng has come a long way from its humble beginning in the 1960s when Lim Tiam Seng entered the construction business as a subcontractor. In 1994, his son-in-law Raymond Chia joined the group, which was by then a mid-sized construction group, assisting with small-scale property developments and helping the group to attain ISO certification for its construction business in 1996.

Mr Chia also restructured the group and steered it towards a listing on the mainboard of the Singapore Exchange in November 1999, after which the group embarked on a major expansion wave in the property development and investment businesses.

It also began to expand overseas – starting with Australia in 2002, when it bought a small office building in Adelaide, which it later strata subdivided and then sold the individual units. The following year, the group acquired a seafront residential site in the same city, which it subsequently developed into 23 apartments – all of which have been sold.

Currently, the group has four ongoing residential projects in Melbourne as well as a plot of land in Perth that has been earmarked for commercial and residential development. Chip Eng Seng also owns an office building at 420 St Kilda Road in Melbourne. The group has ventured into Vietnam, where it is involved in a joint-venture residential project in Ho Chi Minh City.

In addition, Chip Eng Seng has diversified into hospitality, developing its first hotel in Singapore – the 442-room Park Hotel Alexandra next to IKEA and which opened in 2015.

In 2016, it entered into an agreement for the purchase of an island-resort in the Maldives. Its 30 per cent partner in the acquisition is Park Hotel Group, the operator of Chip Eng Seng’s Singapore hotel. The 120 all-villas Maldives resort is slated to open this year.

Over the past decade, Chip Eng Seng has completed the development of 19 property projects (mostly Singapore residential projects). It also owns a portfolio of investment properties generating recurring income – besides 420 St Kilda Road in Melbourne, these include a six-storey light industrial building at 69 Ubi Crescent in Singapore, and CES Centre at 171 Chin Swee Road (where the group occupies two floors with the rest of the 12-storey office block leased).

As for its original construction business, the group’s modus operandi is to play the role of main contractor for third parties (mostly for the construction of public housing flats for the Housing & Development Board) as well as being the main contractor for most of the group’s property development projects.

To keep up with the current drive to boost construction productivity in Singapore, the group last August bought a Singapore company that has knowhow in modular construction technology. The ability to implement prefabricated pre-finished volumetric construction or PPVC – which significantly reduces the number of workers at a construction worksite – places it in a stronger position to tender for construction projects. Chip Eng Seng’s strong construction background also sharpens its competitiveness in state land tenders here – especially for mass-market housing projects.

On the Singapore residential launch scene, Chip Eng Seng was in the limelight in July 2015, when its massive condo project in Sengkang, High Park Residences, sold like hot cakes. Nearly 1,100 of the project’s 1,399 units were snapped up in the first weekend of sales. Minting a high proportion of small units helped the group to keep prices for most units below S$1 million each. Chip Eng Seng’s stake in the project is 60 per cent. The condo is expected to receive Temporary Occupation Permit in the first half of 2019.

All eyes are now on the group’s next Singapore condo launch – the 722-unit Grandeur Park Residences, next to Tanah Merah MRT Station. The project, a solo development by Chip Eng Seng, is expected to be launched in the first half of this year. Will it create another splash?

The group has also been strengthening its senior management team. The latest addition is Michael Ng, formerly group general manager of United Industrial Corporation and prior to that managing director of property consultancy Savills Singapore. Mr Ng is known for his strong marketing and sales skills.

CB Chng, his fellow executive director at CEL Development (a fully-owned subsidiary of Chip Eng Seng) is an architect by training and was a former stalwart at Wing Tai before he joined Chip Eng Seng in 2012. Mr Chng has strong project management skills. Last year, the group also recruited Kenneth Ho, who had previously worked for almost 20 years in China, as general manager of CEL Development, focusing on Vietnam and China. The group has managed to attract a high-calibre professional team to propel its expansion.

All things considered, it has a solid business model – a contractor cum property developer, with overseas diversification and expansion into hospitality. Yet it has not received coverage by stockbroking house analysts, mainly because of its small market capitalisation of some S$400 million. It could also be that a gearing ratio of 93 per cent as Sept 30, 2016, is a concern.

But at 64.5 Singapore cents, the counter is trading at a 46.6 per cent discount to its S$1.21 net asset value per share as at Sept 30, 2016. It also has a big free float of about 63 per cent, which ensures trading liquidity. The Lim family (including Mr Chia) controls around 36 per cent.

With the chess pieces in place, this relatively small company looks poised for bigger things.

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