SINGAPORE (Apr 2): United Engineers can now focus on operational growth, says CIMB, following the completion of the recent takeover exercise.
In a Mar 30 report, analyst Lock Mun Yee says UE should start with low-hanging opportunities to unlock value from its properties such as UE Bizhub City, through increasing property utilisation or optimising the size and use of its hospitality assets.
CIMB's scenario study shows that increasing floor area utilisation of the former by 5-15% would add between 4 cents and 13 cents to UE's RNAV. This does not include organic improvement in rents due to the ability to command higher rates from the upgraded property.
UE is backed by $1.9 billion of wholly-owned rental and hospitality property portfolio, half of which are office assets.
In Singapore, although UE has gone unnoticed in the office rental upcycle which is focused on the core CDB, Lock believes assets such as UE Square and UE Bizhub Tower could benefit from rising rents.
In China, Lock estimates a net discounted after-tax surplus of $146 million when projects in the prime areas of Chengdu, Shenyang and Shanghai are fully monetised.
Meantime, CIMB is valuing the group’s non-property businesses at book. But should the group divest the non-property businesses, Lock says there could be upside from pricing these operations as going concerns.
In addition, UE's engineering, manufacturing and distribution businesses in FY17 generated total operating profit of $13.3 million.
As at 10.50am, shares in UE are trading 2 cents higher at $2.63.
"United Engineers is trading at a 25% discount to our RNAV of $3.46 which does not include upside from any potential AEIs and offers 13% upside to our target price. We maintain our Add call," says CIMB.
