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Singapore | Construction & Engineering

Asia Pacific Equity Research

MARKET CAP: USD 142M AVG DAILY TURNOVER: USD 2.5M 3 Dec 2012 Company Update


Tightening of foreign labour supply Possible supply glut in the EC market Government could introduce measures to rein in EC prices

HOLD (downgrade)
Fair value add: 12m dividend forecast versus: Current price 12m total return forecast S$0.68 S$0.02 S$0.64 9%

Mixed outlook for 2013 Going into 2013, we expect the outlook for UE E&C to be fairly mixed. While the group has a strong order-book (estimated S$400m) and a good pipeline of residential projects, it also faces increasing manpower costs and a potential supply glut in the EC market which could lead to some margin compression over FY13-14F. Higher manpower costs UE E&C is highly dependent on foreign workers due to the limited supply of domestic construction labour force. As the government tightens the foreign labour supply, the group may have to grapple with higher manpower costs and find ways to increase its productivity (although it may not be possible to automate certain labour-intensive construction activities). This may result in higher manpower costs and lower profit margins. Higher risks in the EC market According to media reports1, the EC market could be facing a potential supply glut as the government intends to roll out a record number of EC sites. By end-2013, some 5,600 units are expected to come on stream. This translates into an annual average supply of 4,500 units compared to an average take-up of 3,300 units. In terms of pricing, the government may introduce measures to rein in the escalating EC prices. Noting a news report that an EC penthouse had recently been sold for S$1.77m, MND Minister Khaw said that EC developers, in exercising the flexibility in pricing and design, should heed the EC policys spirit2. He also said that ECs were conceptualized for Singaporean families earning within S$12,000 a month, to enable them to own a condominium-style home at below market prices. Downgrade to HOLD Meanwhile, we note that UE E&Cs share price has risen close to our target price of S$0.68. Given the limited upside, we downgrade to HOLD with an unchanged fair value estimate.
1 2

Analysts Chia Jiunyang, CFA (Lead) +65 6531 9809 Low Pei Han, CFA +65 6531 98813

Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder S$173 / USD142 S$3.1 / USD2.5 5.0 0.3487 - 0.7351 25.8 270.0 SGX UEEC SP UECL.SI NI3 Industrials Construction & Engrg United Engineers - 68% 1m 2 1 3m 14 12 12m 79 62

Relative total return Company (%) STI-adjusted (%) Price performance chart
Shar e Pr i ce (S$ ) 0.95 0.83 0.71 0.59 0.46 0.34 Jan-12 Apr -12 Jul -12

Index Level 7000 6100 5200 4300 3400 2500 Oct-12

Fair Value



Exec condo market facing potential headwinds, Business Times, 7 Oct 2012 EC developers should heed policys spirit: Khaw, Business Times Weedend , 24-25 Nov 2012

Sources: Bloomberg, OIR estimates

Key financial highlights Year Ended 31 Dec (S$m) Revenue Gross profit Operating expenses PATMI Gross profit margin (%) Cons. EPS (S cts) Net profit margin (%) ROA (%) PER (x) EPS (S cents) FY10 351.1 59.0 -18.0 39.8 16.8 na 11.3 9.7 NA NA FY11 370.8 86.3 -22.6 64.5 23.3 na 17.4 15.6 2.7 23.9 FY12F 339.6 51.9 -19.7 26.3 15.3 9.7 7.7 5.6 6.6 9.7 FY13F 353.2 58.0 -20.4 31.1 16.4 11.5 8.8 7.2 5.6 11.5

Industry-relative metrics
P er c ent i l e 0t h 25t h 50t h 75t h 100t h

M k t Cap B et a ROE PE PB


I ndus t r y A v er age

Note: Industry universe defined as companies under identical GICS classification listed in the same exchange. Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document.

MICA (P) 035/06/2012

OCBC Investment Research Singapore Equities

Company financial highlights

Income statement Year Ended 31 Dec (S$m) Revenue Gross profit Operating expenses EBIT Other income, net PBT Tax PAT Minority interest PATMI

FY10 351.1 59.0 -18.0 41.0 -1.3 39.7 -8.5 31.3 -3.2 39.8

FY11 370.8 86.3 -22.6 63.7 11.4 75.0 -10.4 64.7 -0.2 64.5

FY12F 339.6 51.9 -19.7 32.2 1.3 33.4 -6.7 26.7 -0.4 26.3

FY13F 353.2 58.0 -20.4 37.7 2.0 39.6 -8.0 31.6 -0.6 31.1

Balance sheet As at 31 Dec (S$m) Cash and cash equivalents Other current assets Property, plant, equipment Total assets Debt Current liabilities excluding debt Total liabilities Shareholders equity Total equity Total equity and liabilities

FY10 62.5 168.0 34.4 323.5 28.4 209.6 255.5 67.6 67.9 323.5

FY11 139.0 146.9 43.3 415.0 26.1 212.5 249.8 164.7 165.2 415.0

FY12F 147.5 195.4 45.6 479.0 21.3 269.9 303.2 174.7 175.8 479.0

FY13F 148.5 147.9 48.2 438.8 21.3 202.0 235.3 201.8 203.4 438.8

Cash flow statement Year Ended 31 Dec (S$m) Op profit before working cap. Working cap, taxes and interest Net cash from operations Purchase of PP&E Investing cash flow Financing cash flow Net cash flow Cash at beginning of year Cash at end of year (inc. FX) Cash & equivalents (inc. OD)

FY10 41.0 37.1 78.0 -15.1 -28.4 -3.5 46.2 4.5 51.0 62.5

FY11 64.1 -14.3 49.8 -17.3 -2.6 29.1 76.2 51.0 127.2 139.0

FY12F 34.9 1.8 36.7 -12.3 -7.6 -16.5 12.6 127.2 139.8 147.5

FY13F 41.1 -26.1 15.0 -10.0 -10.0 -3.9 1.0 139.8 140.9 148.5

KEY RATES & RATIOS Gross profit margin (%) EBIT margin (%) Net profit margin (%) ROA (%) ROE (%) Net gearing (%) EPS (S cents) NAV per share (S cents) PER (x) Price/NAV (x) Sources: Company, OIR forecasts

FY10 16.8 11.7 11.3 9.7 58.8 Net Cash NA NA NA NA

FY11 23.3 17.2 17.4 15.6 39.1 Net Cash 23.9 61.0 2.7 1.0

FY12F 15.3 9.5 7.7 5.6 15.0 Net Cash 9.7 64.7 6.6 1.0

FY13F 16.4 10.7 8.8 7.2 15.4 Net Cash 11.5 74.8 5.6 0.9

Company financial highlights

OCBC Investment Research Singapore Equities

SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report hold NIL shares in the above security.


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- OCBC Investment Researchs (OIR) technical comments and recommendations are short-term and trading oriented. - OIRs fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIRs BUY rating indicates a total return in excess of 10% given the current price; a HOLD trading indicates total returns within +/-10% range; a SELL rating indicates total returns less than -10%. - For companies with less than S$150m market capitalization, OIRs BUY rating indicates a total return in excess of 30%; a HOLD trading indicates total returns within a +/-30% range; a SELL rating indicates total returns less than -30%. 198301152E Carmen Lee Head of Research For OCBC Investment Research Pte Ltd

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Important disclosures