Chip Eng Seng

Hi Sumer. nice to hear from you again.

Wondering about the sale of 100PP? I think it is about half sold only?

anyway,was thinking to whether pick CES up before 20Feb result or after it? haha.

Hi ateo, yes I think 100PP is between 50-60% sold only, based on last available update.

It's up to you when you want to add CES. Q4 2013 will see earnings and cash from TOP of My Manhatten. To be conservative, I estimate full year net for CES at about $41m only. I am hoping for a div per share of 3ct. I don't think full year results will have too much an impact on CES share price, either way.

There has been quite a bit of selling of CES lately. The seller is adamant on wanting to close the share low. I am not sure why.

CES share price has not fallen as much as the bigger cap property stocks, although this outperformance still cannot compare with the stunning performance of Oxley in recent weeks.

Nevertheless, the bigger prop stocks seem to be attempting some rebound at the moment.

Nine Residences is currently around 65% sold according to data from REALIS.

Hi Summer,

Management guided My Manhattan TOP for 1H 2014, and when I last visited the site in December, there were still construction workers on the site. Could there be any material progress that might have pushed the TOP date forward ? Thanks a lot!

Oops, left out some updates on CES Australia website.

3 February 2014
DONCASTER TOWNHOUSE DEVELOPMENT
Late 2013 CEL Australia was pleased to be the successful bidder on a substantial land parcel at Williamson's Rd Doncaster. We look forward to rejuvenating this site as a high quality townhouse development commencing in 2014.

3 February 2014
VICTORIA STREET, CARLTON/CBD
2014 means exciting times ahead for CEL Australia, including finalising plans for our latest major development at Victoria Street on the CBD edge. Aligning with the Swanston Street view corridor, this site hold something special for Melbourne.

I'm guessing these two projects will be launched in 2014

Thank you axe for your alert on CEL Aust website notes. I must have missed out indications on My Manhattan TOP too.

The effects of a 2014 TOP for My Manhattan are not too major on my projections.

I hope to read more indications on CES projects in the FY results to be released on 20 Feb.

Hi Summer,

No problem. Thank you for your idea on CES, I did my homework and agree with your thesis and it's currently one of my biggest holdings. Would like to share some of my findings so that everyone can benefit hope there's no overlap or repeat of information.

You are right on the possible Alexandra Central TOP in 4Q 2014. Keong Hong, the main contractor for Alexandra Central guided for a 1Q 2015 completion during an announcement made when they clinched the contract. So there is chance that it will be early.( infopub.sgx.com/FileOpen/Ann-Hotel_Proje...cement&FileID=233646 )

Regarding the dividend. Despite being a developer, CES doesn't have a history of reducing dividends. Their Ordinary dividend has steadily climbed from 0.5 cents in 2003 to 4 cents. Only their special dividend fluctuates. Since last year's dividend was a 4 cents ordinary dividend, I think it is unlikely they will reduce it despite smaller earnings in 2013 if they are confident of the coming years. I won't be surprised if they actually upped the dividend.

I think investing in property counters is not without its risks. There are plenty of room for project delays, slow sales, poor execution, cost overruns and intense competition. However, I think the low price to RNAV of CES and it's large number of units sold makes it an exception. I did a stress test and found that if residential prices dropped by 20% CES RNAV will only drop by around 4%-5%. Therefore its current share price provides a huge margin of safety.

I've always wondered why does such a huge value gap existed (compared to other property counters). My guess is because of CES's market size and shareholder structure. Many 2nd tier developers are controlled by families, often having 50-80% stake in the company and thus making the shares illiquid. Given their huge stakes, it is easy to close the valuation gap between price and RNAV simply by issuing shares (bonus shares). Doing so helps them raise the valuation without diluting their stakes, as such, small undervalued developers (which tend to grow fast) are harder to find now. This might be less effective for CES to execute due to its high liquidity and only 35% shareholding of the management.

Secondly, CES is so undervalued is because it's small. We probably know that small developes tend to grow faster if they execute well because one good project can increase NAV substantially. Compare CES to City Development or Wing Tai. Imagine just how many projects they have to do to grow at the same rate as CES, it is just not possible. These are the two main reasons why I think CES is so undervalued (on top of poor market sentiment) I might be wrong though, just my guesses and would love to hear more views .

I'm still trying to figure out the possible risks to CES, I think I've pretty much covered most of it (construction woes, poor sales going forward, buyer default, weak sentiment, price correction, inaccurate estimates, Aussie policy risks eg. height limit etc..) and the margin of safety protects me from all these downsides. If there are any risks that I might have left out, please let me know

Looking forward to their results on 20 Feb.