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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
Low Pei Han, CFA +65 6531 98813
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
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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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