United Engineers Seeks WBL to Ease Profit Swings: Southeast Asia

United Engineers Ltd., which is bidding S$710 million ($570 million) for a Singapore-based car distributor, said the addition of Bugatti and Jaguar dealerships would smooth volatility from its property business.

The company said it’s bidding for WBL Corp. because the “recurring income” from the luxury car dealerships would counter the choppiness from real estate and construction, which are driven by the timing of contracts, United Engineers Chief Executive Officer Jackson Yap said in an interview yesterday. He’s also seeking acquisitions to expand his environmental engineering and water unit.

“We have been looking to grow at a faster clip,” Yap, 61, said in Singapore, where his company is based. “We said we would look for opportunities to buy something and buy something substantive. This allows us to diversify, and expand in a market that’s more exuberant than Singapore.”

United Engineers, founded in 1912 as an engineering company that helped build Singapore’s historic supreme court and Shangri-La hotel, has been scouting for businesses to broaden its revenue sources, Yap said. Its 2012 net income dropped to S$72 million from S$269 million a year ago, when it completed the sale of its properties in the city.

The property development unit contributed almost nothing to its revenue in 2012, compared with about 65 percent the year ago, the company said last month.

United Engineers raised its bid for WBL to S$4.15 a share in cash on March 12 and said yesterday the offer closes on April 24. The earlier offer of S$4 topped a rival bid from Straits Trading Co., which has since lapsed. The revised bid values WBL at S$1.19 billion.

Bentleys, Bugattis

WBL has dealerships in six Asian markets, where it sells Volvos in China, Bentleys in Indonesia, and Bugattis in Singapore, according its website.

Straits Trading more than doubled its stake in WBL to 45 percent after buying stock from two shareholders, emerging as the biggest investor. It made a S$3.41 per share offer for WBL, prompting United Engineers’s bid at the end of January.

WBL’s shares, which have risen 6 percent this year, fell 0.5 percent to S$4.23 at the close in Singapore and traded above the revised price every day since the offer was announced. United Engineers dropped 0.3 percent to S$3.18.

“WBL shareholders will probably let this lapse unless there’s a better offer,” said Alison Fok, an analyst at Maybank Kim Eng Holdings. “United Engineers will be business as usual. They are still growing their recurrent business and are on the look out for acquisitions.”

Fair Value

Yap said WBL shareholders should consider government measures to curb homes sales in China and car loans in Singapore. WBL has property projects in five Chinese cities, and also sells Bentley and Jaguar vehicles in the city-state.

KPMG Corporate Finance Pte., a financial adviser to WBL’s independent directors, said in February it valued the company at between S$4.56 to S$5.30 per share. It’s expected to release a valuation report based on United Engineers’s revised bid. Fok said yesterday she’s not changing her Jan. 31 valuation of between S$5.04 and S$5.59 for WBL with the government measures in China and Singapore.

“This is the million-dollar question,” Yap said, when asked if he would raise his offer. “This is a good price, at a premium to various indicators, and it’s a thinly traded stock.”

Yap’s bid has the backing of Oversea-Chinese Banking Corp. and partners of Singapore’s second biggest bank, which jointly own 40 percent of WBL. They plan to keep the stake if the acquisition is successful.

Acquisition Funding

United Engineers, which has S$452 million in cash, will fund the acquisition through its own resources, bank loans and through its medium-term note program, Yap said.

United Engineers is also seeking more acquisitions to boost its environmental engineering and water business. In Singapore, the biggest contract was a S$250 million venture that’s part of a S$2 billion project to centralize sewage for the eastern half of the island, Yap said. It also built a system to circulate water stored in the downtown Marina Bay reservoir, and cleans water at Genting Singapore Plc’s Marine Life Park, touted as the world’s largest oceanarium.

In China, its plants currently treat about 100,000 cubic meters of water a day. Yap said this would need to increase to 1 million cubic meters to be “a critical size” for the business. He also looking to expand in Vietnam, Indonesia and Malaysia.

Pigs, Ducks

“If we want to grow, we would need to buy something,” said Yap, who’s looking for acquisitions in China. “Many countries in this part of the world continue to grow, and they haven’t really been spending enough attention or money on environmental infrastructure,” adding that “dead ducks and dead pigs floating in the river” in China show there are opportunities for environment companies.

More than 1,000 dead ducks were found in a river in the southern Chinese province of Sichuan this week, while more than 11,000 dead pigs were retrieved from Shanghai’s Huangpu river this month.

United Engineers’s environmental engineering and water unit has increased to 50 engineers from five in the past eight years, and has an annual revenue of S$70 million. The appetite for his next acquisition will depend on whether its WBL bid is successful.

“We could do more, but we probably have to lower our target because this is quite a big one,” he said.

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