Future Outlook Of The Capital Goods Industry And Chip Eng Seng Corporation Ltd (SGX:C29)

Chip Eng Seng Corporation Ltd (SGX:C29), a S$538.4m small-cap, is a engineering and construction (E&C) company operating in an industry which is expected to benefit from higher gross domestic product, high consumer confidence, and upbeat private sector investments. Along with these positive signals is the potential for significant infrastructure plans and public-private partnerships to fund them. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 23.1% in the upcoming year , and an enormous growth of 72.1% over the next couple of years. the growth rate of the Singapore stock market as a whole. Should your portfolio be overweight in the E&C sector at the moment? Today, I will analyse the industry outlook, and also determine whether Chip Eng Seng is a laggard or leader relative to its capital goods sector peers.

Check out our latest analysis for Chip Eng Seng

What’s the catalyst for Chip Eng Seng's sector growth?

The E&C industry in Singapore faces growing competition from players in China, Korea and India. Firms in rapidly growing economies have spent the past decade focusing on their home markets, gradually building up cash positions and internal expertise. Now, as growth eases in their home markets, they are expanding outward and seeking to compete against established global players. In the past year, the industry delivered negative growth of -0.3%, underperforming the Singapore market growth of 11.3%. Chip Eng Seng leads the pack with its impressive earnings growth of 74.6% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 11.2% compared to the wider E&C sector growth hovering in the twenties next year. Since the Construction sector in SG is relatively small, I’ve included similar companies in the wider region in order to get a better idea of the growth, which is a median of profitable companies of companies such as Hock Lian Seng Holdings, KSH Holdings and . As a future industry laggard in growth, Chip Eng Seng may be a cheaper stock relative to its peers.

Is Chip Eng Seng and the sector relatively cheap?

The E&C industry is trading at a PE ratio of 10.65x, relatively similar to the rest of the Singapore stock market PE of 12.16x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 8.3% on equities compared to the market’s 7.6%. On the stock-level, Chip Eng Seng is trading at a PE ratio of 11.47x, which is relatively in-line with the average E&C stock. In terms of returns, Chip Eng Seng generated 8.2% in the past year, in-line with its industry average.

Next Steps:

If Chip Eng Seng has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is E&C industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the capital goods sector. However, before you make a decision on the stock, I suggest you look at Chip Eng Seng's fundamentals in order to build a holistic investment thesis.

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Historical Track Record: What has C29's performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Chip Eng Seng? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.