Money Talk: United Engineers, Silverlake Axis, CCT

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. United Engineers (UE)

Broker: CIMB

The proposed sale of non-core asset automotive business is a positive for UE. Fundamentally, it reduces gearing and unlocks value for shareholders. From an M&A (mergers and acquisitions) angle, we believe it also prepares UE for a potential takeover by Thai tycoon Charoen.

However, at 23 per cent discount to revalued net asset value (RNAV) and 1.05 times the adjusted net tangible assets, we believe the positive impact from the sale has been priced in. The next re-rating or de-rating catalyst is likely to come from whether or not a potential takeover takes place.

A potential takeover at a 5 to 15 per cent discount to RNAV could value UE at $3.02 to $3.38 a share, implying a 10 to 23 per cent upside. The downside, should there not be a takeover, could be about 10 per cent if United Engineers trades back down to a 30 per cent discount to RNAV.

Maintain our Hold rating. Our target price increases to $2.85 from $2.53, still based on 20 per cent discount to RNAV.

2. Silverlake Axis

Broker: OSK-DMG

Silverlake delivered both record net profits and revenue in FY2014 of 248.9 million ringgit (up 27 per cent) and 500.7 million ringgit (up 26 per cent) respectively, exceeding our net profit forecasts by 3 per cent.

Revenue from maintenance and enhancement services grew 21 per cent to 210.3 million ringgit on the back of new contracts secured in Malaysia, Singapore, Indonesia and Thailand. The group also benefited from full-year contributions by Merimen Group and maiden contributions from Cyber Village in FY2014.

Software licensing rose 23 per cent year-on-year to S$147.7 million with the delivery of several major contracts. As of June 30, Silverlake has a strong net cash position of 346 million ringgit and with the stellar performance in FY2014, the company has proposed a special and final dividend of 0.6 cents and 1.2 cents respectively.

Together with the interim dividend, total FY2014 dividend amounts to 4.5 cents, in line with our 4.4 per cent FY2014 dividend yield forecasts. However going forward, uncertainty still lurks regarding the RHB deal. We are currently reviewing our target price.

3. CapitaCommercial Trust (CCT)

Broker: OCBC

Earlier this week, S&P announced that it had upgraded CCT's long-term corporate credit rating from 'BBB+' to 'A-' with a stable outlook. The rating agency had reassessed CCT's appetite for expansion and believes that the trust would likely "remain disciplined in using debt to fund new investments."

CCT has significant capital headroom for acquisitions ahead; by our estimates, the trust has a debt headroom of $1.3 billion before it hits a 40 per cent gearing level. Looking ahead to FY2015, we believe that management will likely exercise its call option to purchase the remaining 60 per cent of CapitaGreen that it does not already own.

Assuming a valuation of $2,500 to $2,800 psf net lettable area, this will cost $1.1 billion to $1.2 billion, which CCT can wholly fund using debt and still land under a 40 per cent gearing ratio post-transaction.

Maintain Hold with unchanged fair value estimate of $1.67.

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