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An Opportunity Worth Chipping In
Corporate Digest | 11 March 2008
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By: Xavier Lim
Articles (51) Profile

Vietnam, with a population of over 85 million, saw its property prices increased 50% on average in 2007, largely fuelled by investors shunning the stock markets in favour of the more gainful investment sectors.

Economists estimated that the capital injection into the Vietnamese property market reached US$5b. Vice chairman of the Ho Chi Minh City Real Estate Association, Le Hoang Chau, said property prices are likely to rise because the city has plans to start many major transport infrastructure projects this year.

Chip Eng Seng Corporation (CES) has captured the opportunity by acquiring a 5% stake in Vietnam’s leading listed company, Hoa Binh Construction & Real Estate Corporation. Good news come in pairs. CES also announced that it will be launching its first two joint venture residential development properties, both of which are condominiums in Ho Chi Minh City. It expects the properties to be launched in 1H08.


CES has once again reported a marvelous 242% jump in earnings as compared to the preceding year. It has also proposed to issue a total dividend of 1.75 cents, which translates to a dividend yield of 3.1% based on its closing price of $0.56 as at 25 Feb-08. At $0.56, CES is priced at a price earnings ratio (PER) of only 7.3 times based on its FY07 earnings, which appears to be ridiculously undervalued, looking at CES’ track record. From FY03 to FY07, CES has gradually increased its earnings year after year without disappointing its investors. So it is not unreasonable to assume that its bottomline will continue on the uptrend.


Although high-end luxury property in the mean time is unlikely to dominate the market like last year, prices of mass-market private homes are likely to appreciate 10% to 15% this year due to the fact that mid-range home prices are still below their peaks and more people are getting richer. CES’ CEO, Raymond Chia said that the company will focus on midmarket properties in Singapore, which we think is probably a better choice for the current situation.

CES reported in its FY07 results that it has provided for foreseeable losses of $12.3m based on the revised budget to take into consideration the increase in construction costs for labour, materials and overheads. This may lead to some disappointment as most investors expect it to profit from the buoyant construction activities. Nevertheless, Shares Investment (Singapore) foresees that construction costs should stabilize going forward in view of the deferment of $1b worth of government projects as well as certain launches of properties by developers due to weak market sentiment. Moreover, CES’ outstanding construction order book stood at $684m as at 20 Feb-08.

Indeed, the US sub-prime crisis and the withdrawal of the deferred payment scheme in Oct-07 have caused some weakness on the property market’s performance. Nevertheless, these are not going to erase the fact that Singapore is aggressively aligning herself to stay on top of her neighbours and preparing to benefit from the huge potential of the multi-billion dollar tourism industry. The 2 Integrated Resorts, the F1 race, the Singapore Sports Hub and the recently secured hosting of the Youth Olympic Games in 2010 will definitely boost Singapore’s tourism industry, and in turn boost foreign direct investment and benefit property prices and construction activities.

So is it time to chip in some cash for CES’ shares? Nobody can answer this question. But it might be good to consider what investment guru, Warren Buffett once said, “It’s bad to go to bed at night thinking about the price of a stock. We think about the value and company results. The stock market is there to serve you, not instruct you. ”

Armed with an arsenal of investment knowledge, Xavier is the Senior Research Editor at Shares Investment.

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Chip Eng Seng Corp  0.655 -0.025 -3.68%   
Business: [FY18 Turnover] Property development (70.2%), construction (21.8%), hospitality (5.9%), Corporate, property investments & education (2.1%).

Insight: Feb-19, FY18 revenue increased 27% to $1.1b, contr... Read More

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