Friday, January 31, 2014

UE E & C - Piling on the cash (CIMB)

UE E & C  
Current S$1.02
Target S$1.12
Piling on the cash

▊ UE E&C is a consistently cash-generative company, and has a sizeable regional presence while maintaining its core strengths in Singapore. It is poised for an earnings jump as contributions from its property development stakes kick in from FY14. UE E&C has a strong local franchise and has expanded regionally of late. Its stakes in property development offer earnings upside in the next three years as these properties reach completion. We initiate coverage with an Add rating and a target price of S$1.12, based on 4.7x CY15 P/E (in line with the sector’s six-year mean). Catalysts could come from more joint venture property developments and a pick-up in construction order wins.

 
Spreading its wings
The company’s presence stretches across the region, reaching out from its base in Singapore to Brunei, Malaysia, Vietnam and more. We expect UE E&C to leverage its strong UE brand name to pursue contract wins, supporting its order book and diversifying revenues. Its order book was a healthy S$650m as at FY12, and it ought to have been mostly replenished by its contract wins in FY13. We also see long-term potential for the company in China, as its parent group, UEL’s, business presence there was strengthened by its takeover of WBL in CY13.  
 
Banking in the property cheque
UE E&C saw a drop in net profit in FY12, mainly due to the lack of property completions. However, FY13 earnings are supported by a robust 9M, while completions from its Austville Residences and Watercolours projects, expected in FY14 and FY15, will bring profits back to the strong levels seen in FY11.  
 
Secured growth
The group has been in a net cash position for the past three years, which provides a strong balance sheet to fund its continued expansion. The risks to margins are from the rising labour costs in Singapore, but this could be mitigated by stable raw material prices. Maintaining its current dividend payout ratios could lead to c.6-7% dividend yields going into FY14-15.


Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 13/01/14

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