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Chip Eng Seng mulling purchase of local construction firm

MAINBOARD-LISTED Chip Eng Seng is in discussions to fully acquire a local construction company that is privately held, the property and construction group announced in a bourse filing on Friday after market close. 

Chip Eng Seng's board believes that the acquisition will strengthen the company's construction business, with "a good opportunity for horizontal integration" amid the competitive landscape for construction tenders in Singapore.

"The group will also benefit from the target company's capability and track record, which will enhance the ability of the group to participate in tenders for a broader range of projects, such as civil engineering and building infrastructure projects," Chip Eng Seng said in its filing. 

None of the company's directors or shareholders are related to the potential target company, it added. 

The potential acquisition comes as Chip Eng Seng expects to post weaker results for Q3 ended September, compared to the year-ago period. However, it expects to remain profitable for the full financial year. 

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The real estate vertical remains challenging, as no revenue can be recognised yet from the Parc Komo project, while costs are being incurred. With the gloomy outlook, Chip Eng Seng plans to be cautious in replenishing its land bank. The company plans to launch its residential development at the Kampong Java site in the first half of 2020.

The construction arm is similarly facing tough times, with Chip Eng Seng's order book declining since Q2 due to progressive billings for existing projects and a dearth of new contracts.

Amid the volatile economic environment, Chip Eng Seng intends to "practise prudent management of credit, market and operational risks". It believes that the upcoming completion of its rights issue to raise S$96.3 million will strengthen its books.

Shares of Chip Eng Seng closed at S$0.625 on Friday, down 0.79 per cent.

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