We upgrade UEM from Hold to Add, and believe it offers value at a 21% discount to RNAV. We tweak our RNAV-based TP (still 15% discount) and cut our FY15-16 EPS as we adjust our assumptions for its China residential projects and account for the sale of UE E&C. Catalysts can come from operational improvements or potential takeover offers.
2014 – all about divestments
FY14’s core net profit of S$73m was slightly above at 114% of our full-year forecast, but 2014 was really a year of divestment of non-core assets. During the year, UEM divested a series of subsidiaries, with the bulk being the automotive business and MFS Technology under its 67.6%-owned WBL, and UE E&C. Through this, the group secured cash proceeds of S$686m and net disposal gain of $55.2m, lowering its net gearing to 0.45x (from 0.78x in FY13). UEM’s proposed a dividend 10Scts, which translates to a 3.5% dividend yield.
UEM today: a long-term play on investment property
Post its series of non-core assets divestments, UEM is predominantly a Singapore property play with investment and residential properties making up 69% and 13% of GAV respectively. Its investment properties generated rental revenue of S$240m in FY14, and we expect this segment to continue delivering stable rental income. Additionally, we believe there is long-term redevelopment potential in selected buildings such as UE Square, UE BizHub Tower (previously 79 Anson) and 450 & 452 Alexandra Road. Within its residential properties segment, Singapore forms 74% and is largely from Eight Riversuites which has been 93% sold. The risk for UEM is limited to its stake in MFLX US and the China residential properties, in our view.
Upgrade to Add
We upgrade UEM from Hold to Add, and believe it offers value at a 21% discount to RNAV. Catalysts can come from operational improvements, further asset sales or potential takeover offers. (Read Report)
Source : CIMB Research