Chip Eng Seng sees opportunity in education sector

Singapore

CONSTRUCTION and property group Chip Eng Seng Corporation has proposed a diversification of its business by venturing into the education sector.

It said on Monday that it hoped to construct, own, and operate educational facilities and schools as well as manage their programmes.

For a start, it plans to focus on growing this proposed business in the Asia-Pacific region, but will consider expanding globally when the opportunity arises.

The group reckoned that its existing businesses of construction, property development and investment, and hospitality will remain core for the group but they tend to be cyclical and vulnerable to changing economic conditions.

Whereas the proposed education business is non-capital intensive, allowing the group to tap alternative revenue streams without requiring heavy capital investment.

"The company recognises that this is an opportune time to ride on its track record and established brand name and consider its strategic options to strengthen its financial position by diversifying its business and creating new profitable revenue streams," the group said.

The proposed diversification came after the group reported last month a 0.5 per cent dip in net profit for the year ended Dec 31 to S$35.5 million, dragged by marketing and distribution expenses. Its revenue grew 14.9 per cent to S$859.7 million, but higher contributions from property development and hospitality segments were partially offset by construction and property investments businesses.

Given the uncertainties in the global economic outlook, the company believes that it is prudent to explore new industries and take active steps to reduce reliance on any one particular segment in the market.

The new business segment is expected to provide additional and recurrent revenue streams and have the potential to achieve long-term growth for the group.

Recently appointed executive director Tan Tee How, 58, will oversee the proposed new business. His last role prior to joining Chip Eng Seng was commissioner and CEO of Inland Revenue Authority of Singapore. He was permanent secretary at the Ministry of National Development from 2004 to 2011 before serving as permanent secretary at the Ministry of Home Affairs from 2011 to 2014.

Explaining how the proposed business is complementary to the existing one, the group said that the establishment of reputable schools in and around properties owned or developed by the group is likely to result in the increase in prices of such properties.

"The group would also be able to harness its construction capabilities to build safe and good quality education facilities," it added.

Shareholders' approval for the proposed diversification at an upcoming extraordinary general meeting is required as the new business area will materially change the existing risk profile of the group.