United Engineers Limited was founded in 1912 as a construction company. Over the years, the company has diversified into different business activities. Through its subsidiaries, the company operates a multi-disciplinary engineering services, such as civil, mechanical and electrical engineering services in Singapore and overseas.  

#1: Stock Symbol

SGX: U04

Share Price: S$2.81 (27 May 2018)

Market Cap: S$1.79 billion

Sector: Industrials

Industry: Conglomerates

#2: Business

UEL has a diversified business, from property development to electronic manufacturing services. The company derives its income from 3 core business activities. They are:

  1. Property

Property Rental and Services

Under this segment, UEL provides project management and asset management for shopping malls, office buildings and industrial property.

It has 4 commercial and industrial property, namely UE BizHub Central, UE BizHub City, UE BizHub Tower and UE BizHub West. Going forward, the company will capitalise on selective acquisition opportunities to increase its portfolio of commercial assets.

On the other hand, UEL’s portfolio of retail malls comprise of UE Square Shopping Mall, Rochester Mall and The Seletar Mall.

Hospitality

Under this segment, the company has a portfolio of hotels, serviced apartments, serviced offices and convention centre. For FY 2017, the property rental and hospitality segment has contributed a total of S$130.9 million to the group, which is equivalent to 24% of total revenue.

Property Development

It is involved in developing residential, commercial, industrial, mixed use and build-to-suit projects in Singapore, Malaysia and China. To name a few, UEL has completed numerous iconic buildings, such as orchadgateway, The Rochester and Park Avenue Rochester.

The property development segment has contributed S$146 million (about 27%) to UEL’s in FY 2017. Besides, UEL derived the most of its revenue in this segment.

  1. Engineering Services and Distribution

System Integration

The range of services provided includes closed-circuit television (CCTV) solutions, satellite communication systems for offshore platforms, network automation solutions for Telekom Malaysia as well as stage lift system for Genting Malaysia.  

Distribution

Besides, UEL involved in distribution of fire-resistant boards, boiler and laundry equipment, installation of folding machine for SATS Aero Laundry.The engineering and distribution segment has accounted S$135 billion for UEL’s revenue in 2017.

  1. Manufacturing

Under this segment UEL is involved in manufacturing of die-cast precision parts and components. Besides, UEL also have a components business in United Kingdom. The company also acquired new customers in aerospace and medical sectors, as well as widened its product offerings. In 2017, the manufacturing segment accounted an amount of S$85.6 million for UEL total revenue.  

#3: Financials

UEL’s revenue and net profit attributable to shareholders are rather erratic over the past 5 years.

There was a huge increase in revenue from S$2 billion in 2013 to S$3.21 billion in 2014. It was mainly due to the consolidation of approximately S$2 billion in revenue from WLB Group. In May 2013, UEL’s has acquired 56.8% stake in WBL Group to diversify its property development business in China.

However in 2015, UEL posted a huge decline in its revenue as it divested a subsidiary which involved in automotive business. Due to unfavourable market conditions, the automotive business was not profitable to UEL.

 

In 2016, UEL posted a huge drop in revenue again due to lower revenue from the property development business, following its completion of Eight Riversuites. However, its net profit attributable to shareholders has increased due to one off gain from disposal of subsidiary.

For the financial year 2017, UEL saw a 12% increase in revenue to S$539 million. It was mainly driven by higher revenue recognition from property development business in China and Malaysia.

Source: Annual Reports of United Engineers Limited

#4: Balance Sheet Strength

As at 31 December 2017, UEL has S$446 million in net borrowings and a net debt to equity of 0.23. From the graph below, we can see that UEL’s management is committed to strengthen their balance sheet. Since 2013, their net debt to equity ratio has decreased from more than 1 to the current level.

Source: United Engineers Limited Annual Reports

#5: Future Prospects

Looking forward, United Engineers might benefit from the current office rental upcycle. The company’s investment properties such as UE Bizhub Tower and UE Square might benefit from rising rents and thus lifting property performance and operating margins.

UEL also plans to embark on asset enhancements initiatives (AEI) for its investment properties in Singapore, such as UE Bizhub City. This could include increasing property utilisation or optimising the size and use of its hospitality assets. Furthermore, the management indicated that they may look for selective acquisitions when any opportunity arises.

However, I do not see that the bright prospects for UEL’s investment properties will bring much profit to the company, given that the segment only accounts 24% to their total revenue in FY 2017.

For its property development business, the company will focus on sales and leasing of Shenyang Orchard Summer Palace, which saw some improvement for FY 2017. UEL’s executive chairman stated that they may seek opportunities in developing residential projects in first-tier and second-tier cities.

#6: Valuation

As I write, United Engineers Limited was trading at S$2.81 per share. In 2017, UEL has reported earnings per share (EPS) of 14 cents. Therefore, its current PE ratio works out to be 20. It has also reported to have S$3.11 in net assets per share. Thus, its current PB ratio works out to be 0.9.    

In 2017, UEL has paid out S$0.04 in dividend per share. Hence, its dividend yield is around 1.4% if it is able to maintain its DPS at S$0.04 for 2018. However, I have noticed that the company does not has a fixed dividend policy. Therefore, it is not accurate to evaluate the company with its dividend yield.

Although the stock is currently trading below its book value, I still believe that it is slightly overvalued with due to its high PE. Moreover, the company doesn’t seem to have good track record in growing its profit in the past.  

#7: Investors Relation

United Engineers Limited

12 Ang Mo Kio Street 64

#03A-01 UE BizHub CENTRAL

Singapore 569088

Tel: +65 6818 8383

Email: ir@uel.sg

#8: Major Shareholders

Yanlord Perennial Investment (Singapore) Pte. Ltd. – 34.87%

Oxley Holdings Limited – 16.56%

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