Chip Eng Seng warns of H1 loss; four sales galleries closed

MAINBOARD-LISTED property, construction and education group Chip Eng Seng on Thursday warned that it will record an overall loss for the first half ending June 30, 2020, although the full extent of the coronavirus pandemic's impact on the full-year financial performance cannot be ascertained yet.

The group's property development business took a hit after it had to close all four sales galleries in Singapore for ongoing projects - Grandeur Park Residences, Park Colonial, Parc Komo and Kopar at Newton, in line with "circuit-breaker" measures.

Sales for Park Colonial and Grandeur Park Residences increased slightly to 89.6 per cent from 89.1 per cent, and to 98.2 per cent from 97.8 per cent respectively compared to last year, the company said. Sales for Parc Komo declined to 41.3 per cent from 41.7 per cent due to an aborted sale.

The developer also sold 20 units for Kopar at Newton - launched in March - using online tools, with 25.9 per cent of units sold.

Chip Eng Seng said the financial impact of the pandemic was partially mitigated by the government's six-month extension to the project completion period for qualifying residential development projects, and to deadlines under the additional buyer's stamp duty regime to complete and sell all units in these projects.

It added that construction works for Grandeur Park Residences, Park Colonial and Parc Komo were affected by the closure of construction sites and failed to hit construction milestones, which would affect revenue recognition and progressive payments from buyers. Construction works for Kopar at Newton are not due to commence until after restrictions on construction work are lifted.

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However, the company said it would still be able to meet stipulated deadlines for completing and delivering its projects to buyers.

For its Australian developments, the company said it is suspending marketing efforts for FIFTEEN85, its residential development project in Melbourne, until 2021 due to weak consumer sentiment.

For its construction business, Chip Eng Seng said the bulk of activities under its 12 Singapore projects involving building and infrastructure construction works were not deemed essential services, and hence not allowed to continue during the "circuit-breaker" period.

This has caused delays to project schedules and increased project costs, while border control measures have disrupted its supply chain of raw materials, and the work of sub-contractors and outsourced partners.

Due to these factors, some of the projects have become loss-making, it said.

"Contribution of revenue from the group's construction business segment has been and will continue to be adversely affected," it added.

The company said the gradual lifting of "circuit-breaker" measures and strict safe distancing measures imposed on construction sites would "inevitably affect productivity and create a backlog of work", which would be exacerbated by travel restrictions and quarantine or stay-home notices for workers who have either contracted Covid-19 or have been in close contact with Covid-19 patients.

It said it believes it will be able to obtain an extension of time for its affected projects to avoid claims for liquidated damages. Some project owners have also allowed it to submit advance progress claims, which has helped ease cash flow for its construction business.

On a brighter note, Chip Eng Seng's civil engineering and infrastructure arm, CES_SDC, secured two public sector projects worth S$660 million, increasing its order book to S$1.3 billion as at March 31, 2020.

For the hospitality business, Chip Eng Seng said its hotels in Singapore, Australia and the Maldives suffered declining occupancy rates and revenues since February due to travel restrictions imposed by many countries. It recorded occupancy rates ranging from 58 per cent to 66 per cent in Q1, down from a range of 68 per cent to 85 per cent in Q1 2019.

However, it said occupancy in Park Hotel Alexandra in Q2 had been propped up by demand from local companies to accommodate workers affected by Malaysia's movement control order, and those serving their stay-home notices in hotels.

The group will defer construction works for new hotel development projects in Adelaide and the Maldives till 2021, it said.

As for its education business, Chip Eng Seng said the pandemic had in part delayed the licensing and completion of renovation for its new schools - including its Invictus-branded schools in Hong Kong and Cambodia - affecting its ability to market them and secure enrolment numbers.

It added that its existing schools in Singapore - the White Lodge and Repton Schoolhouse preschools - reduced their fees during the "circuit-breaker" period, while its Invictus International School agreed to reduce or waive fees on a case-by-case basis for students whose families were financially hit by the crisis.

On Wednesday, Chip Eng Seng announced the termination of a contract-of-sale relating to the proposed acquisition of a childcare business in the Australian state of Victoria, as well as the commencement of legal proceedings for a refund of the deposit.

For its property investment arm, Chip Eng Seng said rental income generated from its investment properties does not contribute significantly to revenue.

The group has taken steps to conserve cash flow by postponing non-strategic investments and non-essential capital expenditures; based on a cash-flow projection for the rest of the fiscal year, it can meet all borrowings maturing this year, said the company.

Shares of Chip Eng Seng finished Wednesday at 51.5 Singapore cents, up 1 cent or 2 per cent.