Chip Eng Seng Corporation Ltd’s Latest Earnings: What’s Next After Record-High Profits?

Chip Eng Seng Corporation Ltd (SGX: C29) released its fiscal fourth quarter results for the year ended 31 December 2014 yesterday.

The firm, which is based in Singapore, splits its business into three divisions – Property Developments, Construction, and Property Investments & Others.

With these as a backdrop, let’s dig into Chip Eng Seng’s latest set of numbers.

Financial highlights

Here’s a quick rundown of the important figures:

  1. For the quarter, total revenue spiked by 113% from S$173.2 million a year ago to S$368.6 million. Chip Eng Seng ended 2014 with annual revenue of S$1.106 billion, up an even more impressive 120% from 2013’s revenue of S$502.5 million.
  2. Profit for the quarter was S$167.6 million, representing an incredible 384% surge from a year ago. For the full year, profit was at S$280.7 million, some 283% higher than 2013’s profit of S$73.4 million. Although stronger revenue did help Chip Eng Seng’s 2014 profit (which was a record high), it was also boosted by a S$37.9 million fair value gain.
  3. With the increase in profit came higher earnings per share (EPS). A slight reduction in share count resulted in EPS for the quarter growing by 393% to 26.61 Singapore cents. 2014’s EPS was 44.07 cents, up 289% from a year ago.
  4. The huge profit jump was not accompanied by growth in cash flow though. For the whole of 2014, operating cash flow came in at a negative S$73.9 million, an improvement from the negative S$113.6 million seen a year ago.
  5. Chip Eng Seng’s inability to produce cash from its business had a hand to play in the weakening of its balance sheet from a year ago. At end-2014, the property outfit had S$285 million in cash and deposits and S$941 million in borrowings; these figures were at S$284 million and S$768.5 million respectively as at end-2013.

Pulling everything together, it was a good year for Chip Eng Seng with strong top- and bottom-line growth. But, investors might want to keep a keen eye on the company’s cash flow figures and debt levels. If a firm can’t generate cash from its operations, it has to borrow excessively to run its business, which may be risky.

Shareholders of Chip Eng Seng might be delighted to know as well that the company has declared a total dividend of 6.0 cents per share (a 4.0 cents ordinary dividend and 2.0 cents special dividend) for 2014. This is an increase over the annual dividends of 4.0 cents per share given out in both 2012 and 2013.

Operational highlights

Chip Eng Seng’s revenue growth was mainly due to “stronger contribution from the Property Developments division.” Sales from this particular division for 2014 went up 240.9% to $765.6 million on the back of the completion of the residential development project, Alexandra Central, at the end of 2014.

Going forward, Chip Eng Seng “plans to adopt a cautious approach towards growing its land bank locally as cooling measures and economic uncertainty continue to send buyers to the sidelines.”

But that said, the company’s still busy with launches of its projects as well as the bidding of projects for the development of Housing Development Board (HDB) flats:

  1. Chip Eng Seng’s currently preparing for a re-launch of its Fulcrum residential project at Fort Road in the second half of 2015. The company “anticipates a pick-up of demand for development projects in the East Coast area” as a result of the upcoming Thomson-East Coast MRT Line and thinks that this can benefit Fulcrum.
  2. In addition, the company will also launch its Fernvale Road sites this year. The TOP (temporary occupation permit) for Chip Eng Seeng’s maiden hospitality offering, Park Hotel Alexndra, is also expected to be obtained in the middle of this year. The company expects the hotel to “contribute materially to the Group from 2016.
  3. On the HDB front, Chip Eng Seng expects public tenders for construction projects to be intense given that the Ministry of National Development has announced that the number of Build-to-Order flats would be reduced to 16,000 in 2015 from 22,400 in 2014. However, the company expects itself to be a “strong contender in this field due to its sterling track record in public housing.”

Wrapping things up, Chip Eng Seng ended 2014 with an order book of S$622.2 million, up 19.6% from the figure of S$520.4 million at end-2013. With part of the company’s future revenue coming from its order book, shareholders might be happy to note that the figure’s growing.

At Chip Eng Seng’s closing price of S$0.965 yesterday, it’s valued at 2 times its trailing earnings and 0.8 times its latest book value. Shares of the company also carry a trailing-12-months dividend yield of 6.2%.

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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 Sudhan P doesn’t own shares in any companies mentioned.