United Industrial Corporation eyes buying out the rest of SingLand

But there are 2 reasons why it's unattractive.

According to OSK DMG, United Industrial Corporation (UIC) has made a general offer to buy out the rest of Singapore Land (SingLand) that it does not own, at SGD9.40 per share.

The offer represents a premium of 11.2% over Sing Land’s last traded price but is at a 28% discount to its NAV of SGD13.07/share.

Here's more from OSK DMG:

SingLand is currently 80.4% owned by UIC, while US-based equity fund Silchester International Investors LLC holds another 8.2%, leaving free float at 11.4%

The proposed privatisation of Singland continues the stream-lining at UOLrelated entities in recent years and follows the privatisation of UOL’s hotel arm Pan Pacific Hotels Group last May.

UOL also indirectly controls Singland through its 44% stake in UIC. An eventual consolidation of UIC-Singland will boost UOL’s asset base by cSGD8bn and propel it into a top-tier property company in Singapore.

However, we deemed the Singland offer not attractive as: 1) UIC’s offer is at a steep 35% discount to our RNAV/share of $14.50. Singland’s hotels in the Marina belt (Pan Pacific, Marina Mandarin and Mandarin Oriental) are currently carried at cost and we reckon revaluation surplus will lift its NAV by as much as SGD1/share; 2) Unlike property developers which have lumpy earnings and operate under a more challenging environment with the many rounds of cooling measures here, Singland’s portfolio of offices, retail assets and hotels generate steady, recurrent earnings of cSGD200m p.a. and carries low operating risk.

The stock has traded above the offer price after commencing trading yesterday, closing at SGD9.42.

We recommend investors to reject UIC’s low-ball offer. On the other hand, buying into Singland at current levels offers an option value if the offer price is eventually raised

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