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Breakdown: United Engineers And WBL – Another F&N?
Breakdown, Tradeable | 06 February 2013
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By: Simeon Ang
Articles (125) Profile

With the Fraser and Neave saga nearing its end, all seemed to be relatively calm and quiet with regards to large merger and acquisition deals on the Singapore Exchange. However, it seems as if someone else has got other plans.

On 30 January 2013, Singapore-listed United Engineers (UE) launched an all-cash bid for WBL Corporation at $4 per share. The bid values WBL at $1.1 billion and represents a 19 percent premium over an initial competing offer by The Straits Trading Company (STC).

At the heart of this bidding war is WBL, which is an Asian conglomerate with diverse interests various business segments in “key growth industries”. These include the technology sector (controlling interests in major manufacturers of mobile phone circuits), property sector (China), automotive sector (distributor of 11 premium brands in Southeast Asia, China and Hong Kong) as well as other sectors including engineering and distribution, mining, property management and agro technology production.

So, what do analysts think about this latest unfolding drama? Let’s break it down…

In its press release, UE said that it saw the acquisition of WBL as a “transformational” deal, broadening the scale and scope of UE’s existing businesses. In addition, the deal, if successful, will provide an “immediate presence” in terms of property development beyond Singapore.

Lee Syn Yi and Donald Chua of CIMB seem to think that the potential synergies between UE and WBL are limited. They write,

“This offer could be a negative for UE if not for the relatively low valuations that WBL is trading at.”

They continue to say that through their rough calculations, a fair value for WBL should be in the range of $5.15 per share (whilst taking into account WBL’s wide range of business interests). No doubt, they will not be surprised if STC comes up with a rival bid.

Lee and Donald’s Call: OUTPERFORM, with target price of $3.59 (potential upside of 3.8 percent*)

To further complicate matters, WBL has a very wide range of business interests. Such a diverse business background could thus foil attempts to value the company.

Goh Han Peng of OSK Research wrote in a research daily that,

“… unlocking value from its (WBL’s) disparate parts will undoubtedly take much time and effort. We do not see significant upside for WBL even if a bidding war ensues, as the contenders carefully calibrate a fine balance of risks and rewards.”

Notwithstanding the deal, Alison Fok of Maybank Kim Eng draws attention to another development at UE. In December 2012, UE announced that it would purchase 79 Anson Road for $410 million. Alison writes,

“… we remain convinced that this is a good deal for UE, despite market concerns that it paid more than it should have.”

Alison points out that there is room for rental rates to grow and UE could possibly redevelop the whole building.

She goes on further to say that,

“This purchase reinforces our view that UE… is steamrolling ahead to build up its investment property portfolio, now worth over $2 billion”.

Alison’s Call: BUY, with target price of $4.02 (potential upside of 16.2 percent*)

Although a potential bidding war with STC over WBL could be brewing, investors might want to look beyond that and view UE for what it is. A relatively strong investment property counter with the potential for favourable divestments.

*Based on United Engineer’s closing price of $3.46 on 4 February 2013.

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Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

United Engineers  2.610 +0.02 +0.77%   
Business: [FY17 Turnover] Engineering & distribution (25%), property development (27.1%), property rental & services (24.3%), manufacturing (15.8%), corporate services & others (7.8%).

Insight: May-18, 1Q18 revenue fell marginally by 0.8% to $1... Read More
Straits Trading Co, The  2.180 +0.02 +0.93%   
Business: Co is an investment company with stakes in real estate, hospitality, resources, and investment businesses in the Asia Pacific region. [FY17 Turnover] Resources (96.7%), real estate (3.3%).

Insight: Aug-18, 1H18 total revenue rose marginally by 2.2%... Read More


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