S$183m contract wins. UE E&C's recent contract wins comprised development of (i) National Continuing Education & Training (CET) Campus at Paya Lebar Central (East) by the Singapore Workforce Development Agency worth S$94m and (ii) EC at Pasir Ris Drive 3/Pasir Ris Link worth S$89m. Year-to-date, the group has announced contract wins worth about S$344m. We estimate UE E&C's order-book to be in the range of S$600- 800m, against average annual revenue of S$370m for FY08-FY10.
Expanding construction and engineering segments. We expect around 30% revenue growth and 11-14% gross margin for its construction and engineering segments in FY12. Our assumptions are based on the group's sizeable order-book and robust construction demand in Singapore. As mentioned in our report titled "Healthy earnings growth in 3Q11" and dated 18 Nov 2011, we are positive on the outlook for the construction industry due to (i) the significant land purchases by developers during 2010 and 2011 YTD and (ii) government infrastructure projects such as the North- South Expressway and various MRT lines. For UE E&C's announced contract wins, we note that counterparty risks are low as the contracts are mainly secured with government entities and well-established corporates.
Limited impact from latest cooling measure. We also think that recently announced additional stamp duties (ABSD) measure would have a limited impact on the group's property development projects. This is because its developments are pitched at the middle/mass market segment (i.e. Austville Residences - EC located in Sengkang, Pasir Ris EC project) or are mostly sold (in the case of Ascentia Sky). In our view, the hardest hit would be the high-end segment (refer to our report titled "More cooling measures" dated 8 Dec 2011 for more details). While EC prices may fall moderately along with the broad market, the impact on the group's P&L would only appear in FY13-15 when development profits are recognized upon TOP.
Maintain BUY with fair value of S$0.65. As the recent contract wins were already factored into our previous growth assumptions and the impact of the ABSD measures are likely limited for UE E&C, we keep our FY12F EPS unchanged. We continue to value UE E&C's shares at 4x PER to account for its low trading liquidity and short listing history. Maintain BUY with S$0.65 fair value estimate. Potential catalysts could come from further contract wins, while major risks include cost over-runs and severe declines in EC prices
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