United Engineers

United Engineers: Unrated report by UOB Kay Hian on the counter, citing that divestment is underway but hurdles still remain.

Over the last two years, UE has completed or proposed the disposal of more than $750m in assets. Post-disposal of non-core assets, the company is more of a property play with the jewel in the crown being UE Square, a mixed retail, office and serviced apartment development close to River Valley Road. Norman Ip’s recent appointment as Group Managing Director further justifies the company’s intentions to focus on the property aspect of the business given his membership in the Building and Construction Authority and background in real estate.

Over the years, UE has steadily built up a portfolio of well-located properties across prime real estate in Singapore. The most recent acquisition of UE BizHub West is included in the Southern Waterfront City highlighted in the Singapore government’s 2030 Land Use Plan. Property rental formed about 7.5% of FY14 revenue.

Despite not having a formal dividend policy in place, UE has a good track record of paying dividends. From 2010 to 2014, the annual dividend yield ranged from 3.5% to 7.4%. For the same period, UEM consistently paid a first and final dividend of $0.05 per share with a special dividend declared each year.

In Aug 14, it was revealed that OCBC and Great Eastern Ltd were in talks to sell their stakes in UEM to Thai billionaire Charoen Sirivadhanabhakdi. During OCBC’s latest annual general meeting, the directors reiterated the intention to sell the stake in UE but only at the right price. OCBC and related companies own about 30% of UEM.

At the current price, UE is trading at 0.7x 2014A P/B with a dividend yield of 5%.