Expect share price weakness from WBL takeover. 1Q13 results were slightly below our expectations, but largely a misdemeanor given UE’s ongoing plans to takeover WBL. With the recent WBL saga between Straits Trading and UE drawing to a close, we think UE will experience short term share price weakness via paying over 12% higher than their original price of SGD4/share for WBL. We have not factored in WBL’s impact on UE, and remain largely optimistic on UE’s outlook going forward with the inclusion of this conglomerate. Maintain BUY with a TP of SGD4.05/share.

Slightly below expectations. 1Q13 results were slightly below expectations, with higher staff and operating costs arising from the commencement of UE Bizhub East and Park Avenue Changi. Revenue was at SGD136.6m (17% YoY, -25% QoQ), and net profit at SGD7.4m (- 24% YoY, -82% QoQ). UE also recorded higher financing costs from the acquisition of 79 Anson and the completion of UE Bizhub East.

How much is needed to purchase the remainder of WBL shares? We expect UE to fork up around SGD754m (61.7% of WBL share capital), not pertaining to additional expenses incurred during the takeover. This implies a takeover valuation of 1.3x P/B and 6.6x EV/EBITDA on WBL. UE is still waiting on a small percentage of shares from shareholders which we expect them to receive before the deadline on 29th of May. UE will not be purchasing Lee family’s stake of 38.3%; hence will not incur the full brunt of the takeover costs. While UE’s balance sheet is likely to be stretched to 1.8x net gearing after the restructuring, we expect earnings from Orchardgateway in 2014 will relieve part of the debt burden. UE has already drawn out a SGD500m MTN loan for this acquisition.

No property earnings recognition as expected. No revenue has been recorded yet again for this quarter. We expect 8 Riversuites will begin construction next quarter, while Austville Residences will be fully recognised in 2014. As for Orchardgateway, so far UE has incurred SGD186m property development costs, of which will be returned to UE as cash by completion by early 2014.

Maintain BUY. Valuation wise, UE remains a buy as it trades at a discount to its RNAV of SGD5.36/share. We maintain our TP of SGD4.05/share, with a 25% discount to RNAV.

Source: Maybank Kim Eng Research - 16 May 2013