Stock of the Month (March 2012)

AGAIN!! UNDERVALUED STOCK

I have gone through my 2nd filter for around 1000 SGX stocks, and this one stands out.
The stock price is high now for most of the counters. It's getting harder and harder to find a counter that is worth buying.

1) Stock of the Month:
ChipEngS (C29)

2) Company Background:
Chip Eng Seng Corporation Pte Ltd was incorporated in Singapore on 23 October 1998. It changed its name to Chip Eng Seng Corporation Ltd on 3 November 1999 in line with the change of its status to a public limited company. The Group is currently engaged in building construction activities in public and private sectors and other construction-related activities, including civil engineering. Incidental to its main business, the Group also owns a few investment and development properties which include residential, industrial and commercial buildings. The Group's property development and investment arm has undertaken several development projects in Singapore and Australia, both on its own and with its partners.


3) Core Business/Revenue
The main source of income of ChipEngS is from Construction segment as shown in the figure below:

4) Company Update

Chairman's Message:
The Singapore government has announced new property cooling and stabilisation measures in January 2011, to stabilise home prices. This coupled with a more moderate and sustainable growth of 4-6% in the Singapore economy in 2011 is likely to impact market sentiments in the short term. Nonetheless, we remain positive on the long term outlook for the Singapore property market. We have built up a landbank of well-located sites. We believe that with their excellent locations and our track record in developing attractive homes, our projects will continue to find favour with home buyers and investors. The group will also continue to maintain a balanced and diversified portfolio of projects, locally and overseas. In February 2011, we launched Phase 1 or 150 units of our 301-unit condominium project, “My Manhattan” in Simei St 3. Depending on market conditions, we expect to launch our condominium project at Fort Road, our joint venture Executive Condominium project at Pasir Ris and our maiden DBSS project at Bedok Reservoir Crescent in 2011. In Australia, we will also launch a mixed-use project in Scarborough, Perth. Given our long standing track record in public housing, our Construction Division is well-positioned to gain from HDB’s building programme; in 2011, HDB expects to offer up to 22,000 new flats under the Build-To-Order Scheme, up from 17,700 flats in 2010. Our expanding precast division will also provide a new area of growth for our Construction Division.

5) Market Cap: S$ 320.407M

6) Industry: Property and Construction

7) Company Type: Steady Growth (preferable to hold forever)

8) Current Trading Price :$0.48

9) Intrinsic Value: $0.98 (It should worth this price, I feel market is wrong, as it always does.)

10) Share Price Chart (5 years)

11) Insider Trade

Announce Date	Date of Effective Change	Stock Name	Buyer / Seller Name	Type a	S / W / U b	Bought / (Sold) ('000)	Price ($)	Closing Price ($) d	After Trade		Note
									No. of Shares ('000) c	% Held c
3-Oct-11	3-Oct-11	ChipEngS	Chia Lee Meng Raymond	DIR	S	100	-	0.335	20,827	3.145	Note
3-Oct-11	3-Oct-11	ChipEngS	Goh Chee Wee	DIR	S	14	-	0.335	1,136	0.172	Note
3-Oct-11	3-Oct-11	ChipEngS	Hoon Tai Meng	DIR	S	12	-	0.335	1,126	0.17	Note
3-Oct-11	3-Oct-11	ChipEngS	Ang Mong Seng	DIR	S	9	-	0.335	146	0.022	Note
1-Apr-11	1-Apr-11	ChipEngS	Chia Lee Meng Raymond	DIR	S	100	-	0.500	20,727	3.133	Note
1-Apr-11	1-Apr-11	ChipEngS	Goh Chee Wee	DIR	S	15	-	0.500	1,122	0.17	Note
1-Apr-11	1-Apr-11	ChipEngS	Hoon Tai Meng	DIR	S	13	-	0.500	1,114	0.168	Note
1-Apr-11	1-Apr-11	ChipEngS	Ang Mong Seng	DIR	S	9	-	0.500	137	0.021	Note
3-Jan-11	3-Jan-11	ChipEngS	Chia Lee Meng Raymond	DIR	S	300	-	0.455	20,627	3.12	Note
3-Jan-11	3-Jan-11	ChipEngS	Goh Chee Wee	DIR	S	44	-	0.455	1,107	0.167	Note
3-Jan-11	3-Jan-11	ChipEngS	Hoon Tai Meng	DIR	S	38	-	0.455	1,101	0.167	Note
3-Jan-11	3-Jan-11	ChipEngS	Ang Mong Seng	DIR	S	28	-	0.455	128	0.019	Note

12) Financial Data

units in SGD '000	2010	2009	2008	2007	2006	2005	2004	2003	2002	2001
Revenue	477,030	376,435	354,591	201,174	165,058	99,799	141,768	159,770	176,015	140,327
Profit Attributable To Shareholders	109,688	75,271	43,899	50,345	14,718	11,277	10,440	8,498	3,960	1,517
Historical EPS (cents)	16.63	11.41	6.6600d	8.08	2.43	1.86	1.83	1.73	0.81	0.31
Gross Dividend Per Share (cents)	4	3	0.75	0.75	0.75	0.75	0.75	0.5	0.25	0.25
No. Of Ordinary Shares Issued ('000)	659,515	659,515	659,515	659,515	606,789	606,789	606,789	492,360	490,480	490,000
Reserves	273,423	182,588	110,422	85,407	39,777	48,941	45,229	36,494	30,136	28,200
Shareholders' Equity	348,288	257,453	185,287	160,272	89,105	79,280	75,568	61,112	54,660	52,700
NAV Per Share ($)	0.5281	0.3904	0.2809 d	0.243	0.1468	0.1307	0.1245	0.1241	0.1114	0.1076
Price Earnings Ratio (PER) (Price/EPS)	2.72	3.96	6.79	5.92	20.24	26.42	28.54	35.06	75.24	196.42
Return On Equity (ROE) [%]	31.493	29.237	23.692	31.412	16.518	14.224	13.815	13.906	7.245	2.879
Debt To Equity Ratio	1.117	1.004	1.704	0.929	1.419	1.159	1.688	1.752	2.098	1.357

13) Conclusion
This stock has superb EPS track record. I would say it is growing fast and strong. And it is too strong that government have to intervene the housing market. From my opinion, housing cooling measure is a good news, it means a steady growth in the market and that is quite promising. If you look at the Gross Dividend Per Share, it recorded a 4 cent per share where the share price is now 48 cents... almost 10 percent return solely on dividend payout! If you look at the 10 years history, the dividend payout is keep increasing! Take note that in the latest Quarterly Report (shown below), a sharp drop in net profit is seen, which is not recorded in the table above (col#12) because Annual Report 2011 haven't come out yet. The sharp drop is due to a change in accounting practice. Before the implementation of INT FRS 115, the revenue can be recognized before a construction project is completed. After the implementation of INT FRS 115 at 1st January 2011, the revenue can only be recognized after a construction project is completed. To me, this is just a matter of which year the revenue is to be recorded, there is no impact on company's profile. Well, the coming Annual Report is going to report a significant drop in net profit due to INT FRS 115 and may hurl away some superficial investors thus causes the share price to drop. ^.^ This provides a good entry opportunity.
Details on INT FRS 115 implementation:
http://www.asc.gov.sg/frs/attachments/2010/INT_FRS_115.pdf

14) Entry and Exit Strategy:
Recently, there is a significant buying volume to this counter (refer to the chart below). The gradual increase of stock price is because of gradual stock collection by managed funds (unit trust/investment holdings/etc). This is a normal practice in the stock market as investment holdings avoid market attention, so that they can soak up a significant amount of stock before the price is hot. Well, although there is a significant surge in price, but I believe this is not too late to get into the market looking at my intrinsic value of $0.98. Anyway, this surge of price gave me a confirmation that this counter is worth buying. I expect there will be some fluctuation on the price, but it wouldn't drop below $0.32. The strategy is easy for this counter, buy and hold forever! Unless you think Singapore housing market is not attractive any more.