2nd Liner Prop Stocks

2nd Liner Prop Stocks - 18th July

Sumer wrote: I believe Hiap Hoe has sold about 85% of the 461 units at Marina Tower Melbourne within one week. This, if true, is an impressive feat and shows that demand for Melbourne units is still strong despite worries otherwise. It also bodes well for HH’s other Melbourne residential project at Lonsdale Street.


Sumer in your post you stated:
I believe ..............
This, if true, .............
What you had posted is from the information you had gathered. You have every right to "believe" and every right to state "if it's true"

Sumer I support you fully, as retail investor who does not own research and analysis of stocks you have share unselfishly and honestly. Many of us have benefited from all your past shareing.

What many of us dislike is some in the forum shouting:
cheap cheap, just buy, this stock is gem, etc. These people do not even know the value of the companies, of which some of their business facing competition, head wind, etc. These stocks when I check the chart are going down-hill over the past few years and yet these people clasified it "GEM"

Sumer hope you continue to share freely as in the past and many thanks to you.

Sumer, your views on the property counters have been insightful and I enjoyed reading them. Keep it up.

Chip Seng Seng is very undervalued. The Alexandra Central project alone is likely to increase its NAV by at least 60 cents. Management bought back millions of shares at 0.74 to 0.76 cents. Current Market price is 0.805. Hence, Market Cap works out to be $516mil.


Did anyone estimate the obscene profit CES will reflect in its book in the coming few quarters?
I did some rough calculation using just one of its projects, Alexandra Central. It seems that just one major project can already create enough NAV to cover its current market cap.

a. 450 hotel rooms x $1mil per key = $450 mil (Valuation)
b. Commercial retail space = 90,000sqf x $5233 (source: property guru)PSF x 80% (efficiency ratio) = $377mil (REVENUE)
c. Total cost of investment = $320mil (land, construction, etc)
(land cost = $189mil. The construction contract was awarded to Keong Hong for $101mil).
[$350mil might have been "overstated" at company's website]

Shareholder value from this single project alone ~ $507mil , which is close to its current market cap (but yet to be recognized in books) based on very conservative assumptions!

And this is just one project and there are many others (Nine residence/Junction 9, progressively recognized, etc). Its construction business earns about EPS 5 cents per annum.

The current NTA of around 80 cents seem to be grossly understated. Given that company was buying furiously at 75.5 cents on average, it could not be just for a meager 10-20% gain (IMHO). In fact, company is sending a very clear and strong signal to its loyal shareholders.

The total intrinsic value by end of FY2015 would probably in the region of $1.60
(very conservative, excluding TM and other pipe projects such as the Malacca retail/hotel, Fulcrum, Doncaster project in Melbourne)

The earlier Phillip report seemed to have grossly understated the NAV gain from Alex Central.

Hotel valuation per room for a recent 4-star hotel transaction is already in the region of $1mil per key. However, Phillip only assumed $0.5mil per key. If $1mil per room was assumed, the NAV would have been about 30 cents higher.

(old 3 star hotel at Little India was recently transacted at $0.75mil per key)

(typical 4-star hotel valuation was already at around $0.8m to $1mil back in Jan 2013)

DMG Report:
research.dmg.com.sg:9898/UploadPDF/SG_M1..._20140722_OSKDMG.pdf

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.

Hi lotustpsll, Rock, Wiki, Sykn, thank you for your kind words.

Hi potatolover, I had created a separate track for Chip Eng Seng in Novermber 2013, as I foresaw that the counter would have enough catalysts and angles to garner regular postings. You may want to check it out.

I started alerting readers on CES in September 2012 (under a teaser thread: “Guess which SG developer plans to build this Down Under”) when the stock was trading at about 46ct. Since then, it had dished out 8ct dividend, and the share price is now 80.5ct, which means a total return of 42.5ct or 91% in under 2 years. I like property stocks which have the security of high asset backing (50% discount to RNAV) yet is expected to post glowing earnings and pay out good dividends: I have safety, good income and excitement all rolled in.

My take on CES’ RNAV is lower (but its moving with news flow of course), especially if I write off Tower Melbourne and do not take into account its un-launched Aussie sites, for prudence.

But yes, CES remains my favourite stock right now, mainly because:

1. It is expected to report an EPS of about 30ct for FY 2014. Post-2014, Junction 9 and 9 Residences should also contribute in a major way, and hopefully if TM goes ahead, Melbourne projects will provide the rest of the bigger earnings.

2. I am hoping it raises DPS to 6ct, even if part of it is special dividend, for FY 2014.

3. Its management has proven to be hardworking and agile, managing to clinch lucrative sites in Singapore previously (until the competition gets too hot here), still bidding for sites at reasonable offers, moving early into Melbourne (albeit TM being an uncertain project as of now), generous dividend payout (which means respect for retail shareholders’ interest), and humble and friendly major shareholder/management.

4. And the share buyback is positive.