SGX: Chip Eng Seng Corporation Ltd – Maintain BUY; TP: S$0.47

Chip Eng Seng S$156m design and build contract from HDB for design and constructionof residential buildings with a carpark and community facilities. Preparationand complete design, submission and obtaining DC approval, including otherpreparation work will take 7 months and is expected to commence in September2008. Upon the approval from HDB, construction work will commence for a periodof 30 months.

Strong order books of S$843m as at Sep 08, expected to be recognised over thenext two to three years. We expect gross margins to be relatively stable as rawmaterial prices increase will be protected by fluctuation clauses for publicprojects, which account for about 75% of the Group’s existing order books.


Valuation & Recommendation

Maintain BUY recommendation with price target of $0.47. We raised our FY09Frevenue and earnings forecast by 13% & 1% respectively. We continue tovalue CES using sum-of-the-parts valuation method, valuing its constructionbusiness at unchanged 5x FY08F construction earnings and revaluing CES’s unsoldproperty developments. We have revalued all of CES’s unsold developmentprojects, namely its Elias Road development, at lower than recently transactedprice to assume 100% sales in current market. Despite a 25% discount factor toSOTP valuation to incorporate risk of rising labour cost, diesel and steelprices, CES is still trading at a steep discount to our target price of S$0.47.