Better than expected. United Engineers announced FY12 results above our and consensus expectations. Revenue came in SGD595.7m, down 50%, and net profit was at SGD87m, down 70%. Excluding revaluation gains on investment properties, core profit would have came in SGD49.3m, which is broadly in-line with expectations. The Group has announced a final dividend of 10cts a share, which implies a 3% yield. We maintain BUY on the counter with a TP of SGD4.02/share.

Earnings largely driven by investment property division. Apart from the revaluation gain, FY12 offered a decent run on hospitality operations, where core operating profit came in SGD52.1m. We expect this to continue to improve as United Engineers will be launching their hospitality operation (251 rooms) in UE BizHub East in 2Q13. In addition, we expect the rise of Star Vista’s retail traffic will inherently flow to The Rochester.

Property earnings to flow through. In the property development side, the Group will be focusing on the execution of 8 Riversuites, and Austville Residences, which are 50% and 100% sold respectively. As construction will commence this year for both projects, we expect approximately SGD19m of pre-tax profit will be recognised from 8 Riversuites, while Austville Residences will be fully recognised in 2014.

Balance sheet is still manageable. 79 Anson’s acquisition will be incorporated into the balance sheet next quarter. We expect net gearing to increase to 0.93x to account for additional borrowings. The Group has drawn out SGD300m term-loan so far, and we expect remaining portion will be paid out by internal financing. As for WBL counter offer, we reiterate our stance that Straits Trading will counterbid.

Reiterate BUY. We maintain our positive stance on United Engineer turning into an income generative Company, and at the same time continue to reward its shareholders well. Maintain Buy with target price of SGD4.02, pegged to a 25% discount to RNAV.

Source: Maybank Kim Eng Research - 01 Mar 2013