United Engineers' property portfolio a treasure trove for potential buyers

SINGAPORE (Oct 13): DBS Research is maintaining a target price of S$2.75 on United Engineers (UE) on news that OCBC and Great Eastern are mulling a sale of their collective 32% stake in the engineering developer, which will trigger a mandatory general offer.

In an unrated report on Tuesday, lead analyst Rachel Tan notes that the company will be of interest to prospective suitors including listed developers, private property funds and overseas developers.

UE’s portfolio of commercial properties in Singapore has seen stable revenue contribution from high recurring rental income. In FY2015, four of its business parks and office properties attained near-full occupancy. After divesting UE Bizhub East in 2013, rental revenue contribution ranged between S$140 million (RM426 million) to S$150 million for FY2015 and FY2014, down from S$210 million in FY2013.

The company’s residential property developments have also seen good sales. Its Singapore development, Eight Riversuites achieved more than 97% sales at the end of 2015, and attained TOP in Jan while its Malaysian development, the Manhattan, achieved more than 65% sales.

In China, UE’s Shenyang Orchard Summer Palace, a mix of retail, serviced and residential apartments and commercial offices, has begun sales and leases for the retail and commercial portion. Chengdu Orchard Villa, another development with 1,358 units of terraces and semi-detached houses, is currently under construction.

To recap, UE has been focusing on streamlining its hospitality and real estate divisions since 2014, divesting non-core assets. UE has businesses including environmental engineering, systems integration and distribution of various materials. These accounted for 71.4% of FY2015 revenue, driven mainly by MFLEX subsidiary whose recent disposal would reap about $115 million in gains.

Post divestment of MFLEX, Tan expects the property development and property rental and services division to dominate revenue contributions.

Shares of UE are up two cents to S$2.53. — theedgemarkets.com.sg

Not sure how much you will have to pay a month for your home? Check out our mortgage calculator here.