by winston » Mon Feb 16, 2015 6:12 pm
not vested
Contrary to our expectations of a positive outcome, OCBC ($10.39, down 14 cents) and Great Eastern ($25.85, down 4 cents) said that their exclusive agreement with Charoen has expired and that they could not reach an agreement on an appropriate transaction structure for the possible transaction.
As a result, United Engineers ($3.17, down 11 cents) share price will come under significant selling pressure today. This is especially so given the huge speculative positions taken ahead of last Friday’s deadline.
The 6-month daily average trading volume of the stock was only 2.2mln shares compared to last Wed to Friday’s average of 14.29mln shares (was a
significant 20.36mln shares last Thursday alone).
The un-winding of the huge speculative positions in the near term will likely see the stock being sold-down way beyond its fundamentals.
We note that before Charoen came into the picture at end Aug’14, the stock was trading close to the $2.30-2.40 level, pricing it at about 0.83x its
NAV then.
Notwithstanding this, we would like to highlight several key points that medium to longer term investors should bear in mind.
Firstly, the company’s Dec’14 NAV remains intact at $2.92/share while RNAV is estimated to be around $3.60/share. Peers in the market such as Capital Land and UOL are currently trading at 0.8 to 1x NAV. Keppel Corp recently launched a privatization offer for Keppel Land at $4.38-4.60/share. At the higher end, Keppel Land would be valued at 0.93x NAV.
OCBC said in their recent results briefing that while the company is not under time pressure to sell-non-core assets, it does not intend to hold on to these assets “forever”. OCBC’s inability to sell UE to Charoen means that they are now open to other potential buyers. While the timing of this remains uncertain, the possibility will continue to remain relevant.
UE has been consistently disposing assets in the past 2 years (UE Biz Hub East, UE E&C, Wearnes Automotive, MFS Tech’s core PCB Biz, a service and maintenance management company and several plots of land in China) and the recent departures of high level executives such as Jackson Yap (CEO), Lester Wong (CFO) and David Liew (MD) without replacements likely suggest that the disposals will continue going forward.
We also understand that UE has been placed on the restricted list of several investment banks given the on-going engagement to help them dispose assets.
In 2013, UE paid 5 cents normal and 2 cents special dividends. We believe in 2014 (when results are announced at end Feb’15), the special dividends will likely continue or could even be more given the disposal gains of UE E&C, Wearnes Automotive, MFS Tech’s core PCB Biz, a service and maintenance management company and several other smallish assets.
We would like to highlight that before UE sold their 68% stake in UE E&C, UE E&C also declared 5 cents normal and 2 cents special dividends (relative to their share price of $1 then)
Given the above, investors with a short-term horizon should “exit the stock” while investors with a longer-term horizon should “wait” for the speculative positions to be un-wound (which is admittedly hard to know exactly when) and the stock to stabilize on more normal trading volumes before “adding”. (Regretfully, we are also removing UE from our 2015 top-pick list)
Source: Lim & Tan
It's all about "how much you made when you were right" & "how little you lost when you were wrong"