Chip Eng Seng Corporation Ltd Maintains Its Annual Dividend

Chip Eng Seng (SGX: C29), a leading Singapore construction and property group, reported its earnings for 2013 yesterday. It had managed to earn a profit after tax of S$73.4 million for the year, down 9.7% from 2012.

The company started out as a construction company but has successfully transformed itself into a property developer as well. Currently, about half of its revenue comes from the development of properties.

Performance for 2013

Over the whole of 2013, Chip Eng Seng achieved revenue of S$502.5million, down 18.6% from a year ago. This is mainly due to lower contributions from its property development segment, which earned revenue of S$224.6 million in 2013 as compared to S$368.6 million in 2012. The construction segment on the other hand, continued growing as it logged a 12.4% improvement in revenue to S$275.5 million.

However, even with the drop in revenue from the property development segment, it is still the largest profit-contributor for the company. The segment actually delivered a pre-tax profit of S$52.9million, up 44% from a year ago, mainly due to a huge increase in profit from its associates.

The construction segment on the other hand, had faced stronger competition and higher labour-cost pressures; pre-tax profits were thus down from S$43.4 million a year ago to S$25.5 million.

The company had ended 2013 with a considerably weaker balance sheet compared to a year ago considering its net debt position (total debt minus total cash) had increased from S$96.8 million to S$484 million.

Future prospects

Chip Eng Seng will be more careful in its landbanking activities going forward as it is concerned with the new property cooling measures implemented here. Nevertheless, the company’s not sitting still as it has been looking overseas for opportunities in a bid to diversify its portfolio.

The company ended 2013 with an order book of S$520.4 million in its construction segment, down 9.5% from 2012.

Pressure from the labour market is expected to continue causing problems for Chip Eng Seng although the company’s proactively finding ways to improve its productivity.

Foolish Summary

Chip Eng Seng is one of the few companies that managed a successful transformation from being a full-fledged construction company into a strong player in the property development space. Although profits for 2013 were down, the company had decided to maintain its dividends at 4.0 Singapore cents per share for the year, unchanged from 2012. With yesterday’s closing price of S$ 0.715, that translates into a historical dividend yield of 5.6%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.