UIC bid values SingLand more richly than peers

[SINGAPORE] United Industrial Corp's (UIC) privatisation bid for Singapore Land (SingLand) values the property developer more richly than its peers, but not by enough to convince every analyst that the offer is attractive.

SingLand shares edged up by 0.2 per cent, or two cents, to close at $9.44 yesterday, a day after parent UIC launched a $9.40 per share bid to take the property developer private.

The UIC offer represents a 31 per cent discount to SingLand's revalued net asset value (RNAV) of $13.70 per share, according to average estimates compiled by The Business Times from four brokers and yesterday's closing prices. RNAV reflects the analysts' view of what a company's net assets are worth at current market prices, as opposed to the booked value.

In the context of the sector, the UIC offer values SingLand more richly than the average estimated 40.1 per cent discount to RNAV for other Singapore-listed developers, according to BT's poll.

The fact that UIC is willing to pay a premium to peers is not surprising.

"Taking companies private usually dictate a premium against the market," OCBC analyst Eli Lee said.

But whether the valuation is attractive beyond the takeover premium is a question that has split Shenton Way.

DMG & Partners analyst Goh Han Peng reckoned that SingLand's assets on their own are deserving of a richer valuation than comparable stocks.

"SingLand deserves a premium over its peers in the real estate sector as substantially all of its assets are in office, retail and hotel sectors, which tend to generate steady recurring income as compared to the more lumpy property development segment, which currently makes up a small part of SingLand's RNAV," Mr Goh said. "Operating risk is much lower as a landlord and SingLand has a large portfolio of prime real estate properties such as Singapore Land Tower, Clifford Centre, The Gateway, SGX Centre 2 and the Marina Square hotels and retail complex. Investment properties are highly marketable assets especially those with good rental streams as these can be packaged into Reits and sold at close to market value."

Mr Goh noted that recent deals, such as UOL's privatisation of Pan Pacific Hotels Group in 2013, came close to RNAV.

"UIC's offer is unattractive as its price does not reflect the intrinsic qualities of SingLand's assets, as well as the undervaluation of its hotels (in the Marina belt)," Mr Goh said.

Maybank Kim Eng analyst Wilson Liew, however, thought that "under normal circumstances, it would be hard to envision SingLand trading at such rich valuations compared with its peers".

Mr Liew said that the UIC offer was worth accepting.

"Prior to the privatisation offer, our target price was $8.20, and we had a "hold" recommendation as we saw little upside given the lack of positive catalysts and poor trading liquidity," Mr Liew said. "As the offer came in at a 15 per cent premium to our own fair value and prices the company at relatively rich valuations on the back of the smaller-than-peers discount, we view the offer as attractive and have advised shareholders to accept the offer."

At CIMB, analyst Donald Chua noted that "SingLand has a very robust capital structure with a very low net gearing ratio. Hence, a premium may be warranted if one looks solely at financials".

In a report, Mr Chua thought that institutional investor Silchester International Investors may not be willing to let go of its 8.2 per cent SingLand stake at UIC's offer price.

"We think that UIC may have to up its price," Mr Chua said. "History suggests that the Wees (who own about 54 per cent of UIC) and JG Summit (which owns about 37 per cent of UIC) will not overpay."

The offer by UIC, which owns 80.4 per cent of SingLand, represents an 11.24 per cent premium to the last traded price of SingLand on Feb 19, and includes a proposed 20-cents-per-share final dividend payout for the financial year ended Dec 31, 2013.