1Q09 results largely in line with expectations ? Net profit rose 53.5% to S$12.4m in 1Q09, largely contributed from progressive recognition of its joint development projects, CityVista Residences (~30% completed at 1Q09) and The Parc (~50% completed at 1Q09) which resulted in a 89.9% increase in share of profits from associated companies to S$14.8m. Grange Infinite, 20% completed at 1Q09, is expected to contribute in coming quarters. We believe Chip Eng Seng is on track to meet our expected completion of 60%, 70% & 60% for CityVista Residences, The Parc and Grange Infinite respectively.

The Suites@Central development update ? The Suites@Central, a 157-unit freehold condominium, is a joint development by Keppel Land (60% stake) and Chip Eng Seng (40% stake). It was recently announced that an en-bloc purchaser, who purchased 51 units on deferred payment scheme, was granted an extension of six months to arrange funds for payment on the condition that the purchaser pays S$0.5m/month during the extension period. The first S$0.5m payment has been made. The Suites@Central was recently transaction at S$1,500~1,535 psf in April 09. It was also reported on Business Times on 12th April that a development next to The Suites@Central, Illuminaire was 96% sold, achieved an ASP of S$1,700 psf. Given that 20% of the purchase price (S$1,806 psf) had been paid by the buyer, with the remaining balance of S$1,445 psf due for collection, we do not expect the JV to sell the 51 units at a price that is significantly lower than S$1,445 psf if the buyer default in payment eventually.

Earnings estimates largely unchanged ? We increase our construction gross profit margin assumption by 2.0% on stabilization of construction cost, bringing our gross profit to S$7.9m. However, we also raise our operating expense forecast to S$18.1, to account for the S$2.1m management and structuring fee for the S$60m bridging loan, lifting our FY09F bottom line forecast by 2.0% to S$68.1m.

Downgrade to HOLD; TP maintained at S$0.30. We are keeping our valuation method unchanged, maintaining 40% discount factor to our SOTP valuation, in line with the discount applied to other property stocks under coverage. We raise our target price slightly to S$0.30, mainly due to higher construction income resulting from higher construction margin. While we continue to like Chip Eng Seng, we believe that the stock is fully valued at current level. The recent rally has lifted Chip Eng Seng's stock price by 155% since 9 th Mar, outperforming STI index which has risen by 50% during the same period. Downgrade to HOLD. Risk to our recommendation includes extended market rally which may lift the share price to a higher level.