UE’s FY08 net profit of S$5.9m was below expectations, due primarily to operating losses from its Engineering and Construction (E&C) division. Excluding the impact of revaluation of investment properties, recurring net profit for FY08 is estimated at S$4.3m, vs FY07’s net loss of S$23.5m. We expect the E&C division to continue to be loss making, and revised our FY09/10 earnings forecasts downwards by 5-11%. Maintain Fully Valued, with TP adjusted for potential dilution.

Below expectations. UE’s full year results were below expectations, with FY08 net profit of S$5.9m (-97% y-o-y) on revenue of S$624.6m (16% y-o-y). Topline growth came primarily from the progressive recognition of The Rochester and Park Central. FY08 operating expenses were significantly higher at S$122.0m on the back of losses on trading investments, impairment of available-for-sale investments and project closure costs. Associates’/JV income was also lower, due to cessation of contribution from AHUP, which disposal was recently completed. The group also posted revaluation losses on its investment properties of S$0.6m in FY08 vs. a large gain of S$199.6m in FY07. Excluding exceptionals, net profit for the year is estimated to be S$4.3m, vs. net loss of S$23.5m in FY07. UE also declared dividends per share of 8.0 Scts for the year.

Rights issue of CBs should strengthen capital base. Net gearing as of end FY08 stood at 0.76x vs. 0.48x a year ago. The 3-for-5 rights issue of convertible bonds (CBs) fully underwritten by OCBC will raise c. S$133.0m of gross proceeds for the group, at a rate of 1.0% per annum. We view this positively, as it allows the group to strengthen its balance sheet amid the ongoing credit crunch, at a relatively low cost.

TP adjusted for potential dilution, maintain Fully Valued. We have revised our FY09-10 earnings forecasts downwards by 5-11% as we expect the group’s engineering and construction business to continue to be loss making, and factor in higher interest expense. To account for potential dilution from the CBs, our TP has been adjusted to S$0.77 (prev S$1.09), still based on 60% discount to RNAV of S$1.93. Maintain Fully Valued.