Thursday, August 23, 2012

A pity for retail investors UIC, SingLand have small free floats

Business Times: Thu, Aug 23

UNITED Industrial Corporation (UIC) and its subsidiary, Singapore Land, have raised their profiles on the residential property front lately with project launches and site acquisitions.

SingLand has been on a mini shopping spree, having bought three 99-year leasehold private housing sites at state tenders this year. It has bagged choice sites in District 10 (Jervois Road and Farrer Drive) or in nice locations at least a notch above typical mass-market housing areas - such as a site next to Bedok Reservoir Park acquired last year and being developed into Archipelago condo, and earlier this month, a plot at Bright Hill Drive near MacRitchie Reservoir.

The Bedok and Bright Hill plots were purchased jointly with UOL Group.

SingLand is also a major office landlord on the island. It owns Singapore Land Tower and Clifford Centre in Raffles Place and about 280,000 square feet at SGX Centre on Shenton Way, in addition to The Gateway on Beach Road, and Abacus and Tampines Plaza in Tampines Central.

One would expect these two counters to be hot stock picks. In reality, they receive scant interest from investors and analysts because they suffer from low trading liquidity because of their small free floats - of about 12 per cent for SingLand and 15.7 per cent for UIC. Some analysts, however, keep tabs on the two companies to aid their coverage of UOL Group, which owns about 43.2 per cent of UIC. Incidentally, UOL, controlled by banker Wee Cho Yaw, has a much bigger free float - slightly above 50 per cent - and hence enjoys a wider following.

UIC now owns close to 80 per cent of SingLand. It in turn is controlled by two big players. Entities linked to Mr Wee (including UOL and Haw Par) hold about 48.2 per cent of UIC, while Philippine tycoon John Gokongwei's Telegraph Developments controls around 36.1 per cent.

With both sides in good financial shape, they may be content to hold on to their stakes and wait - until one makes an irresistible offer to buy out the other. What could, however, do wonders for the two counters is a bigger free float. Even if the major shareholders sell a small portion of their holdings to a big pool of (independent) investors, it would help liquidity.

In the case of UIC, to maintain the current power balance between Mr Wee and Mr Gokongwei, one suggestion would be for them to agree to divest their shares in the company proportionately to their current stakes. Placing out these shares to a large base of investors will help enlarge UIC's free float.

Likewise, UIC could consider selling part of its near-80 per cent interest in SingLand to boost the counter's liquidity.

Such steps would benefit not only the minority shareholders and investing public keen on gaining exposure to these counters, but also the major shareholders on their remaining holdings if prices of the counters improve with bigger free floats.

Based on Tuesday's closing share prices, peer property groups such as CapitaLand and Keppel Land - with much larger free floats - were trading at discounts of 13.6 per cent and 5.5 per cent respectively to their June 30, 2012 net asset value per share. UIC and SingLand were trading at much bigger discounts of 18.6 per cent and 48.3 per cent respectively on the same date, according to Nomura Singapore.

It's a shame if SingLand/UIC share prices continue to languish - given the steady waves the group has been creating in the property market.

UIC is redeveloping its landmark former UIC Building site on Shenton Way into a mixed-development project, including a 23-storey commercial tower with about 280,000 sq ft net lettable area of mostly office space. UIC is expected to retain this space for recurring rental income.

At the project's 54-storey residential tower V on Shenton released last month, close to 190 of the 510 units have been sold at an average price of $2,200 psf. This is UIC's first Singapore residential launch in about five years. By some counts, V on Shenton could generate a pretax profit of over $330 million if all the units are sold, which UIC can progressively book over the next few years according to the stages of the project's construction.

Late last year, when SingLand and UOL launched their joint-venture condo development Archipelago in Bedok, it marked SingLand's first residential launch here since 2009. The 577-unit project is about 90 per cent sold, achieving an average price of about $1,050 psf. A back-of-the-envelope calculation shows SingLand could reap a pretax profit of around $85 million for its half-share.

More launches are on the cards for SingLand.

In Q4 this year, it could release a five-storey condo at Jervois Road. It paid nearly $881 per square foot per plot ratio (psf ppr) for the plot in February. Assuming a break-even cost of about $1,350 psf and average selling price of $1,850 psf, the pretax profit could be over $70 million. It will have about 100-110 units. In Q1 next year, SingLand could launch a condo of 100-120 units near Farrer Road MRT Station on a site bought in June. The estimated profit on this could be in excess of $20 million.

Also slated for release next year is a condo project on the Bright Hill Drive site bought this month by SingLand's equal JV with UOL. The $720 psf ppr land price would result in a break-even cost of around $1,100 psf. Assuming an average selling price of $1,350-$1,400 psf, the pretax profit from SingLand's half-share could be $53 million-$64 million.

SingLand also has exposure to China, with a project each in Chengdu and Shanghai.

SingLand and UIC's fortunes seem to be on the rise. Mr Wee and Mr Gokongwei may be content to wait, nibbling at more UIC shares in the open market until one of them buys the other out. But wouldn't this be a missed opportunity for retail investors who are shut out from gaining a greater exposure to these counters because of their relatively small free floats?

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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