United Engineers eyes divestment of WBL's technology business

Analyst estimates S$491m worth of proceeds.

According to CIMB, United Engineers management plans to divest the less synergistic businesses of WBL, particularly the technology (FPC) business which is not UE’s forte. Management had hinted at potential interest from various undisclosed parties, and believes that it will be able to divest its stake given that both MFLEX and MFS are publicly-listed and are well established in the FPC industry.

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We benchmark MFLEX and MFS Technology to listed companies of comparable market capitalisation and in similar businesses that are trading at 8x P/E.

Accordingly, we estimate proceeds of S$491m should UE divest WBL’s technology units. Estimated 2013 net gearing post-acquisition should then fall from 105% to 81%, comparable to UE’s pre-acquisition net gearing in 2012.

In our view, the negative impact on net gearing can be reduced by the divestment of WBL’s technology segment, i.e. 62% stake in MFLEX and 77% stake in MFS Technology, something UE is exploring.

Management had hinted at potential interests from various undisclosed parties. We estimate proceeds of about S$491m if this segment is divested, which could improve UE’s balance sheet post acquisition, result in a cleaner corporate structure, and potentially lower its conglomerate valuation discount.