UE E&C’s share price has rallied strongly since the beginning of the year. YTD, its share price is up a stellar 74% against the STI’s 13%. We met with management recently and are bullish on its medium to long-term prospects. The group’s strategy of developing its design-and-build capabilities and expanding into property development has enabled it to raise/maintain its margins and provide effective cost controls. Going forward, we think the market will recognize this transformation and re-rate accordingly. Meanwhile, we refined our valuation methodology to SOTP (previously PBR) to account for its returns from development projects. Upgrade to BUY with revised fair value estimate of S$0.81 (previously S$0.65).
Surging interest
UE E&C has enjoyed keen interest since the beginning of the year. YTD, the group’s share has surged 74% against the STI’s 13%, raising its market capitalization from S$104m at the end of last year to more than S$180m currently. We met with management recently and are positive on its medium to long-term prospects.
Moving up the value chain
The group is focused on developing its design-and-build capabilities and expanding into residential property development. By integrating architectural design with construction services (its core strength), the group is aiming to provide a one-stop shop service to its customers. More importantly, this integration enables it to charge a premium for its services and maintain effective cost controls. Similarly, UE E&C’s expansion into residential property development would provide revenue and cost synergies with its construction and engineering services. As the group has been involved in a number of property development projects over the past several years, it would have moved ahead in the learning curve (as a developer). As long as UE E&C continues to deliver on its property development projects, we think that the market will recognize its transformation and re-rate accordingly.
Growth into adjacent businesses
Besides property development, UE E&C is looking to grow selective adjacent businesses (i.e. power solutions) that offer attractive rates of return. With a strong net cash position of S$113m as of end-Dec 11, it is also well-positioned to seek any acquisition opportunities. Meanwhile, we incorporated management guidance into our FY12-13F estimates; this lowered our gross margins assumptions to 21% (previously 24%) and decreased our FY12-13F earnings estimates by 15-20%. We also refined our valuation methodology to SOTP (previously PBR) to account for returns from its property development projects. Upgrade to BUY with revised fair value estimate of S$0.81 (previously S$0.65).
UE E&C has enjoyed keen interest since the beginning of the year. YTD, the group’s share has surged 74% against the STI’s 13%, raising its market capitalization from S$104m at the end of last year to more than S$180m currently. We met with management recently and are positive on its medium to long-term prospects.
Moving up the value chain
The group is focused on developing its design-and-build capabilities and expanding into residential property development. By integrating architectural design with construction services (its core strength), the group is aiming to provide a one-stop shop service to its customers. More importantly, this integration enables it to charge a premium for its services and maintain effective cost controls. Similarly, UE E&C’s expansion into residential property development would provide revenue and cost synergies with its construction and engineering services. As the group has been involved in a number of property development projects over the past several years, it would have moved ahead in the learning curve (as a developer). As long as UE E&C continues to deliver on its property development projects, we think that the market will recognize its transformation and re-rate accordingly.
Growth into adjacent businesses
Besides property development, UE E&C is looking to grow selective adjacent businesses (i.e. power solutions) that offer attractive rates of return. With a strong net cash position of S$113m as of end-Dec 11, it is also well-positioned to seek any acquisition opportunities. Meanwhile, we incorporated management guidance into our FY12-13F estimates; this lowered our gross margins assumptions to 21% (previously 24%) and decreased our FY12-13F earnings estimates by 15-20%. We also refined our valuation methodology to SOTP (previously PBR) to account for returns from its property development projects. Upgrade to BUY with revised fair value estimate of S$0.81 (previously S$0.65).
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