United Engineers

United Engineers: 2Q14 net profit increased 165% to $40.8m, while top line grew 302% to $1.2b due to the full recognition of sales at Austville Residences (TOP: Apr’14), progressive recognition at Eight Riversuits and the consolidation of WBL Group’s full quarter revenue of ~520.2m. Gross margins dropped 6.8ppt to 12.9%, on the losses incurred by Nasdaq-listed subsidiary MFLEX. Aside, bottom line rose at a slower clip to revenue on the back of an 84% drop in other income and increased operating expense. On outlook, property earnings could be lumpy as the remaining landbanks are largely overseas, with the exception of Eight Riversuites. The sale of orchardgateway is expected to occur in 2H14, which should at least bring down UEM’s net gearing from 80%-60%. On a positive note, capacity consolidation and restructuring of MFLEX was mostly completed as at end-Jun and expected cost savings from the restructuring is on track. UEM is currently trading at a 28% discount to RNAV and 0.8x P/BV vs. the historical average of a 48% discount and 0.7x P/BV. Latest broker ratings: CIMB maintains reduce with TP of $2.22