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Broker's take: OUE a potential bidder for OCBC's stake in United Engineers?

Wednesday, September 28, 2016 - 16:35
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PROPERTY developer OUE Limited rose 1.7 per cent to S$1.765 on Wednesday at 4.30pm, continuing its upward climb since Monday. It is already up 6 per cent this week, and up 12 per cent from Sept 15. It is also now close to its one-year high of S$1.787 on Nov 9, 2015.

PROPERTY developer OUE Limited rose 1.7 per cent to S$1.765 on Wednesday at 4.30pm, continuing its upward climb since Monday. It is already up 6 per cent this week, and up 12 per cent from Sept 15. It is also now close to its one-year high of S$1.787 on Nov 9, 2015.

In his note to clients on Wednesday, Tata Goeyardi, Religare's director of Asean sales, noting OUE's unexplained share price climb, wondered if OUE could be a potential bidder for OCBC's stake in United Engineers.

"OUE had bidded for Fraser and Neave before it lost to (Thailand's richest person) Charoen (Sirivadhanabhakdi) in 2012/13, and (OUE executive chairman) Stephen (Riady) has a nose for good deals. OUE has not made any significant acquisition since. However, OUE is now trading at 0.4 times price-to-book (P/B) with 60 per cent net gearing. Acquiring this at one time P/B and issuing equity could be dilutive, in our view.

"Asset-wise, it makes sense. United Engineers holds several residential assets in Singapore, Malaysia and China, as well as UE Bizhub East commercial asset, which can be injected into OUE Commercial Reit, and Park Avenue Clemenceau serviced residences, which can be injected into OUE Hospitality Trust. OUE continues its share buyback programme as well. Could this be another transformation time for OUE?"

United Engineers on Tuesday jumped to a 14-month high after OCBC and an affiliate said that they were reviewing options for their combined stake in the century-old property and construction company.

OCBC, its insurance arm Great Eastern Holdings and the bank's founding Lee family are working with an adviser to start gauging interest, Bloomberg reported, citing people familiar with the matter. Exclusive talks between OCBC and Mr Charoen lapsed last year after parties could not reach an agreement about the asset.

OCBC and the Lee Foundation together own more than 30 per cent of United Engineers. Mr Goeyardi noted that under Singapore rules, buying such a stake would trigger a mandatory takeover offer for United Engineers, which has a S$1.6 billion market value.

"United Engineers' share price has risen by 13 per cent for the past two weeks, and is now trading at 0.9 times P/B. Not sure if anyone would make a bid at higher than book value for its assets, coughing up S$1.75 billion to privatise this," he said.

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