Chip Eng Seng

I am starting a new thread on CES, and will migrate some of my previous points about this counter over from the previous thread titled “Guess which SG developer plans to build this Down Under”. I will summarize and update the figures so that they are easy to digest. Meanwhile, below is my first post on this thread:

CES Q3 results released 2 days ago were within expectations. Gross profit booked from Prive was very close to my own estimate (about $1m difference). If my other estimates are as accurate, then CES should look attractive based on fundamentals.

What is positive is that Tower Melbourne is now more than 95% sold. Based on my estimates, the revenue from this project is above A$300m, with potential gross profit of A$30-60m, depending on assumptions. With TM sales crossing 95%, perhaps CES’ huge 1,000-unit project at Victoria Street will be launched soon.

Meanwhile, sales at 9 Residences are gradually increasing, crossing the 50% mark. Junction 9 shops are 91% sold, against my earlier estimate from agents of 95%. Junction 9/9 Residences project is one of the 2 big profit contributors; it can bag more than $125m in gross profit, slightly lower than Alexandra Central’s $140m.

Meanwhile, with TOP dates clearer, my estimates of CES net profit for 2013-6 are as follows:

2013: $41m, EPS 6.3ct, expected DPS: 3-4ct

2014: $94m, EPS 14.5ct, DPS: 4-5ct?
(main contributors: Belvia, Belysa, 100PP (sold units only), My Manhatten)

2015: $128m, EPS 19.7ct, DPS: 5-6ct?
(main contributor: Alexandra Central; almost fully sold; progressive recognition from 9 Residences)

2016: $97m, EPS 15ct, DPS: 5-6ct?
(main contributor: Junction 9/9 Residences; assumed fully sold)

Beyond 2016: Tower Melbourne (95% sold), Victoria Street (not launched), monetization of hotel, purchase of new sites?

For prudence, the above figures do not take into account Fulcrum profits (sales only 11%, but this is still a very profitable project), construction profits, San Centre revaluation if any, unsold units at 100PP, and the revaluation surplus of its hotel at Alexandra. Also, most of the projected profits are already “locked in”, ie, these EPS figures come from achieved sales.

Construction work at Alexandra Central is pretty fast, and if the shops are ready by next year, 2014 could be a bumper year for CES earnings, with EPS of above 30ct.

The above figures show that CES is going to book very good profits consistently from now till 2016, with generous dividends to boot.

These, plus my rather good impression of CES’ management and major shareholder, as well as its past record of bidding for land, selling its projects quickly, and dishing out dividends generously, make CES my favourite 2nd liner prop stock at the moment.

Thank you for starting up this thread. Been reading and doing some back-reading on sumer's 2nd liner prop stocks recently. Find it quite intriguing for me.

I would like to find out how attractive are the fundamentals (your July 2013 estimate NAV is around $1.50) that CES have which could still persuade investors to hop onto this ride that could have been bit late or not.

I hope to increase more knowledge of such valuation and things to look out for which could prove valuable in the learning journey down this investing road.

I wonder if the properties that CES hold/sold/launching whatsoever can be made into a table for presentation. Like the cost involved, potential profit, valuation and thus arriving at the NAV for investor to take note.Maybe like how OSK-DMG have done for HH and Superbowl.

Then based on management style, strategies, decision making - are they really somehow better or not than other peers?

Hope this makes discussion meaningful to newbies like me or perhaps anyone interesting in CES history/future take note.

Thanks.

Hi ateo,

Sorry I have no idea how to post a table. But I will try to make a list of its projects this weekend and post it in a sensible order.

In terms of comparisons with peers, there are too many property stocks to compare with, and some of them I have not sufficient research to comment. Nevertheless there are many undervalued property developer counters, and hence I own a selection of them so that I am exposed to these companies for different reasons.

Qualitative factors like how I like the management (having spoken to them or seen them at AGMs) are also hard to compare, and sometimes it's a personal thing, and not fool-proof.

But yes, I will gradually share with readers more info on CES on this thread.

Salute you!
plus a adding here, alexandra center hotel to be their invesment property.
Btw, do you about the update regarding the land at perth, 242 West coast highway?

Here is a simple table of CES projects and my estimated gross profits for 2014-6:

2014:
Project NSS Breakeven ASP Gross TOP
sq ft psf ($) psf ($) to be booked

Belysa 376,500 $562 $670 $16.26m 2014
Belvia 550,000 $444 $540 $52.8m 2014
100PP 125,956 $900 $1,050 $10.39m 2014
Manhattan320,000 $878 $1.150 $21.76m 2014

2014 total gross profit $101.2m

Note:
Gross profit is that which is attributable to CES. Belysa is 40% owned, so $16.26m is that attributable to CES’ 40% stake. Other projects 100% owned.
First 3 projects: Lump sum profits on TOP in 2014.
My Manhattan: assumed remainder 25% of profit to be booked in 2014.
100PP: assumed 55% of NSS sold by TOP. Profit here is only for NSS sold.
NSS: Net Saleable Space; ASP: Average Selling Price

2015:
Project NSS Breakeven ASP Gross profit TOP
sq ft psf ($) psf ($) to be booked

Alexandra 50,918 $2,434 $5,300 $146m 2015
Central

Note: These shops are almost fully sold. My estimated total cost (land + others) is $355m for the hotel ($231m) & mall ($124m). This is close to a report on CES citing total cost of $350m. The way I apportioned land cost to hotel and retail spaces may be different from CES, leading to a higher or lower breakeven psf for the shops, and the hotel.

2016:
Project NSS Breakeven ASP Gross profit TOP
sq ft psf ($) psf ($)to be booked

Junc 9 78,985 $2,271 $3,700 $112.9m 2016?

9 Resi 161,500 $875 $1,070 $31.5m 2016/7?

Note: Junction 9 is 91% sold, 9 Res 50% sold. I am assuming 100% sold for both on TOP. 9 Resi profits will be progressively booked from, I expect, 2015.

Park Hotel surplus valuation:

Estimated total cost for hotel: $231m (land, construction, furnishings)

Valuation upon completion: 450 rooms X $720,000 per room = $324m.(Ignore restaurant space, meeting rooms, shop space, if any)

Surplus valuation of Park Hotel = $92.8m


Estimated gross profits from CES' Aussie projects:

Tower Melbourne (95% sold): $52.3m
Victoria Street (1,000+ units, not launched): $90m
Perth site: $0 (for prudence)

I will explain how I arrived at the Aussie figures in a later note. But they are based partially on my estimates of CES’ first Melbourne project, 33M.

The above estimates show that CES will report gross profit of over $100m 3 years in a row - 2014-6. These figures do not take into account profits from Fulcrum (estimated $74m based on $1,950psf ASP) and unsold units of 100PP. I have also not included profits from CES’ construction business.

Should Alexandra Central TOP in 2014 (construction is very fast), next year will be a super profit year for CES, with gross profit perhaps hitting $250m!

CES has cash of $226m at the end of Sep 2013, making a consistently high dividend payout of 4-6ct a breeze for the next few years.

Somehow the table I tried to present looked okay when I keyed in, but became rather messy after I submitted it. However, if you copy and paste into a Word file, and realign the columns, things should look sensible again.

RT Knight, sorry I do not know of any new update on its Perth site except that CES' Aussie website (Google CEL Australia) does indicate that it will be one of the company's future projects.

IMO, CES could be waiting for Perth to start see an interest in apartments, and for the Scarborough Council to be more sure about how it wants to develop this beach-fronting part of Perth. With the site costing not too much, it probably pays for CES to wait for a better time to finalize its project here.