CES launched Grandeur Park Residences in March 2017 and sold almost 72% out of a total of 722 units till date. With no other new projects planned for launch in the Tanah Merah district, we expect CES to sell more units in the next few quarters. CES has completely sold its 60%-owned High Park Residences, a 1,399 unit condominium, as at 1Q17. It has c.60% remaining revenue to be recognised till the project obtains TOP status in FY19. CES’s other high end 128-unit condominium project, Fulcrum, is 78.9% sold amid promotional deferred payment schemes that were introduced in the quarter. With an increased sales momentum in Fulcrum units, we remain optimistic that the Group will be able to clear the remaining 28 units by end-2018 before qualifying certificate extension charges are due.
The Group sold three units of Willow Apartments, a 64-unit, residential apartment project in Doncaster, Melbourne, where it is 57.8% sold as at 1Q17. The slower sales performance was attributed to softer demand in the Melbourne property market, stemmed from cooling measures that were enacted by the Australian Government in a bid to curb the sharp rise in housing prices in the recent years. Consequently, we expect sales for the remaining units in Willow Apartments to remain slow. The development is already more than 50% sold and the Group still has about 12 months before the project is handed over sometime in FY18. In response to the weaker market, CES has delayed its launch of a residential apartment project in South Melbourne to 2H17. The Group continues to await for “further hearings and determination” of the litigation issue at its fully sold Tower Melbourne residential development project. We have not factored any development surplus into our RNAV estimates from Tower Melbourne development, and will not be doing so until there is more clarity of the case.
Investment Action
We are upbeat on CES as it will be booking in revenue from the mostly sold projects that are currently being developed. The newest HDB contract win is timely as order book declined due to the completion of one of its construction projects during the quarter, and boosted the Group’s order book and revenue visibility to end-2019. The vibrant property sales in Singapore will better help realise our RNAV estimate target of CES and will outweigh the slowing market in Melbourne albeit considerably small (less than c.10% of RNAV) based on the value of unsold units and land cost of unlaunched developments. We upgraded our rating on CES to ‘Buy’ and increased our TP to S$0.90 (previous S$0.87) based on our FY17 RNAV estimates.
During the quarter, CES has completed a HDB project at Bukit Batok (N1C13 and N2C23) which has led order book to decline to S$457.2 million from S$537.4 million. The Group has bagged a new contract (Bidadari Contract 8 and 9) worth S$110.8 million from HDB involving the construction of nine blocks of flats and other community facilities for a period of 43 months. Including the new contract win, order book has been lifted up to S$568 million from S$457.2 million and will last till end-2020. We are expecting the Group to continue tendering for public housing construction contracts where the area remains to be their core expertise, however, the Group mentioned that they will also participate in public sector infrastructure projects.
The Group is currently obtaining approval to construct a new prefabricated prefinished volumetric construction (PPVC) assembling plant where the production of PPVC construction materials including precast concrete and modular construction are among the main purpose of the plant’s construction. We expect the plant to be completed and operational by the end of CY17 and will cost about S$10 million in capital expenditure including land costs. While the plant is expected to generate cost savings in supplying PPVC construction materials for the Group, it will also help the Group in tendering for other public sector projects as the Singapore Government is strongly advocating construction companies to improve productivity in the construction sector and one of such area is to adopt the use of PPVC construction materials. In August 2016, the Group was awarded a contract worth S$75.9 million by GS Engineering for the supply of PPVC concrete to be used for the construction of a 4-in-1 rail and bus depot and reception tunnels for the Thomson-East Coast line. We opine that the Group is likely to win more of such supply contracts moving forward.
Valuations
Important Information
This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE
Where the report contains research analyses or reports from a foreign research house, please note:
