FY08 results in line with expectations ? Chip Eng Seng achieved net profit of S$43.9m, in line with our S$44.2m earnings estimates, due mainly to faster than expected contribution from associated companies but partly offset by higher administrative expenses. Share of profits from associated companies decrease marginally to S$49.2m in FY08 but came in slightly ahead of our forecast of S$40.6m. The Parc Condominium & CityVista Residences was 38% & 26% completed at FY08, which was ahead of our expected completion of 35% and 20%.

Lower construction cost likely to benefit Chip Eng Seng in two ways ? Firstly, easing of the construction cost would likely benefit the Group's property development projects, Elias Road project in particular which is expected to be launched in 2Q~3Q09. As such, we have lowered our construction cost assumptions and breakeven estimates by a conservative S$10 psf. Secondly, the Group made S$11.9m of provision for foreseeable losses for its construction segment, mainly arising from the development of its joint venture property development projects. With construction works still ongoing and if easing construction cost trend persist, we may expect some write backs from these provisions in FY09~10F.

Dividends to be decided on a later date ? The Group did not declare any final dividends as at results reporting date. The Group has consistently been rewarding shareholders with minimum ordinary dividends of S$0.0075 per share for the past 4 financial years and sweetening dividend payouts through special dividends during good years. We believe the Group will likely maintain its ordinary dividends payout. We understand from management that dividends, if any, to be declared out of FY08 profits will be announced by end of 1Q09.

Maintain BUY recommendation with price target raise to S$0.29. Based on last transacted price of S$0.17, Chip Eng Seng is currently trading at 0.5x FY09F P/B. We continue to use sum-of-the-parts valuation methodology to value its property development and construction business. We have revalued all of the Group's unsold development projects at lower than recently transacted price to assume 100% sales in current market and continued to value construction business at 3x FY09F construction earnings. We lowered our discount factor to SOTP valuation to 40%, in line with the discount applied to other property stocks under coverage, raising our price target to S$0.29 (S$0.20 previously), a 22% discount to FY09F NAV.