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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 increasingmanpower 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 potentialsupply 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 ourtarget price of S$0.68. Given the limited upside, we downgrade to

HOLD with an unchanged fair value estimate.

1 Exec condo market facing potential headwinds, Business Times, 7 Oct 20122 EC developers should heed policys spirit: Khaw, Business Times Weedend , 24-25 Nov2012

MIXED OUTLOOK IN 2013 Tightening of foreign labour supply

Possible supply glut in the EC market

Government could introduce measures to

rein in EC prices

3 Dec 2012Company Update

UE E&C |BUY

Asia Pacific Equity ResearchSingapore | Construction & Engineering

HOLD (downgrade)Fair value S$0.68

add: 12m dividend forecast S$0.02

versus: Current price S$0.64

12m total return forecast 9%

Analysts

Chia Jiunyang, CFA (Lead) +65 6531 9809

chiajy@ocbc-research.com

Low Pei Han, CFA +65 6531 98813

lowph@ocbc-research.com

Key information

Market cap. (m) S$173 /

USD142

Avg daily turnover (m) S$3.1 /

USD2.5

Avg daily vol. (m) 5.0

52-wk range (S$) 0.3487 - 0.7351

Free float (%) 25.8

Shares o/s. (m) 270.0

Exchange SGX

BBRG ticker UEEC SP

Reuters ticker UECL.SI

ISIN code NI3

GICS Sector IndustrialsGICS Industry Construction & Engrg

Top shareholder United Engineers - 68%

Relative total return 1m 3m 12m

Company (%) 2 14 79

STI-adjusted (%) 1 12 62

Price performance chart

0.34

0.46

0.59

0.71

0.83

0.95

Jan-12 Apr -12 Jul -12 Oct-12

2500

3400

4300

5200

6100

7000

Fair Value UEEC SP FSSTI

Shar e Pr i ce (S$) Index Level

`

Sources: Bloomberg, OIR estimates

Industry-relative metrics

0th 25th 50th 75th 100th

PB

PE

ROE

Beta

Mkt Cap

Company Industr y Aver age

Percent i le

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

Key financial highlights

Year Ended 31 Dec (S$m) FY10 FY11 FY12F FY13F

Revenue 351.1 370.8 339.6 353.2

Gross profit 59.0 86.3 51.9 58.0

Operating expenses -18.0 -22.6 -19.7 -20.4

PATMI 39.8 64.5 26.3 31.1

Gross profit margin (%) 16.8 23.3 15.3 16.4

Cons. EPS (S cts) na na 9.7 11.5

Net profit margin (%) 11.3 17.4 7.7 8.8

ROA (%) 9.7 15.6 5.6 7.2

PER (x) NA 2.7 6.6 5.6

EPS (S cents) NA 23.9 9.7 11.5

Please refer to important disclosures at the back of this document. MICA (P) 035/06/2012

MARKET CAP: USD 142M AVG DAILY TURNOVER: USD 2.5M

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OCBC Investment Research

Singapore Equities

Company financial highlights

Company financial highlights

Income statement

Year Ended 31 Dec (S$m) FY10 FY11 FY12F FY13F

Revenue 351.1 370.8 339.6 353.2

Gross profit 59.0 86.3 51.9 58.0

Operating expenses -18.0 -22.6 -19.7 -20.4

EBIT 41.0 63.7 32.2 37.7

Other income, net -1.3 11.4 1.3 2.0

PBT 39.7 75.0 33.4 39.6

Tax -8.5 -10.4 -6.7 -8.0

PAT 31.3 64.7 26.7 31.6

Minority interest -3.2 -0.2 -0.4 -0.6

PATMI 39.8 64.5 26.3 31.1

Balance sheet

As at 31 Dec (S$m) FY10 FY11 FY12F FY13F

Cash and cash equivalents 62.5 139.0 147.5 148.5

Other current assets 168.0 146.9 195.4 147.9

Property, plant, equipment 34.4 43.3 45.6 48.2

Total assets 323.5 415.0 479.0 438.8

Debt 28.4 26.1 21.3 21.3

Current liabilities excluding debt 209.6 212.5 269.9 202.0

Total liabilities 255.5 249.8 303.2 235.3

Shareholders equity 67.6 164.7 174.7 201.8

Total equity 67.9 165.2 175.8 203.4

Total equity and liabilities 323.5 415.0 479.0 438.8

Cash flow statementYear Ended 31 Dec (S$m) FY10 FY11 FY12F FY13F

Op profit before working cap. 41.0 64.1 34.9 41.1

Working cap, taxes and interest 37.1 -14.3 1.8 -26.1

Net cash from operations 78.0 49.8 36.7 15.0

Purchase of PP&E -15.1 -17.3 -12.3 -10.0

Investing cash flow -28.4 -2.6 -7.6 -10.0

Financing cash flow -3.5 29.1 -16.5 -3.9

Net cash flow 46.2 76.2 12.6 1.0

Cash at beginning of year 4.5 51.0 127.2 139.8

Cash at end of year (inc. FX) 51.0 127.2 139.8 140.9

Cash & equivalents (inc. OD) 62.5 139.0 147.5 148.5

KEY RATES & RATIOS FY10 FY11 FY12F FY13F

Gross profit margin (%) 16.8 23.3 15.3 16.4

EBIT margin (%) 11.7 17.2 9.5 10.7

Net profit margin (%) 11.3 17.4 7.7 8.8

ROA (%) 9.7 15.6 5.6 7.2

ROE (%) 58.8 39.1 15.0 15.4

Net gearing (%) Net Cash Net Cash Net Cash Net Cash

EPS (S cents) NA 23.9 9.7 11.5

NAV per share (S cents) NA 61.0 64.7 74.8

PER (x) NA 2.7 6.6 5.6

Price/NAV (x) NA 1.0 1.0 0.9

Sources: Company, OIR forecasts

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Important disclosures

OCBC Investment ResearchSingapore Equities

SHAREHOLDING DECLARATION:

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

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RATINGS AND RECOMMENDATIONS:

- 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 totalreturns 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 HOLDtrading indicates total returns within a +/-30% range; a SELL rating indicates total returns less than -30%.

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For OCBC Investment Research Pte Ltd

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