UE E&C

Kim Eng on 15 Mar 2012

Company background: UE E&C is a construction and engineering company that was spun off from its parent United Engineers last year. It has been in the construction business for nearly 30 years and was listed in February last year with an IPO price of $0.48 per share. The principal construction entity under UE E&C is Greatearth Construction, which has been graded A1 by the Building and Construction Authority (BCA) of Singapore in both the General Building and Civil Engineering categories, allowing it to tender for public sector contracts of unlimited value.

Recent development: UE E&C’s share price rose by 18% on the day after the company released its FY11 results at the end of last month. Apart from a better-than-expected net profit of $64.5m, bringing its book value to $0.61 per share, it also declared a total dividend of 6 cents per share, compared to none a year ago.

Bumper yield drove share price higher. The total dividend of 6 cents per share (2 cents ordinary; 4 cents special) translates to a dividend yield of 10.3%, despite the surge in share price by 32% since the day its full-year results were announced. While we are impressed by this year’s payout of nearly 25%, we note that the company does not have a fixed dividend policy and has skipped dividends completely last year.

$400m contracts added in the past year. UE E&C was quick to replenish its outstanding orderbook, which had run low, with new contracts from its own development projects and projects from overseas, in particular Brunei and Vietnam, where it has a long presence. Its current outstanding orderbook is estimated to be around $600m, to be delivered until 2015.

 Big on ECs. UE E&C appears to be in the right residential property segment, the red-hot Executive Condominium (EC) market. It has a 30% stake in Austville Residences, for which it is also the main contractor. The project is already 76% sold. It is also developing a new, as-yet-unnamed EC project in Pasir Ris. We expect the take-up for this segment to remain strong at an average price of $700 psf. The recent six-fold increase in allocation of new EC units for second-timers from 5% to 30% during the first month of sales will draw more buyers to EC projects.