United Industrial Corporation's net profit fell 10% to S$39.8m

No thanks to weak home billings.

According to DBS Group Research, UIC reported a 10% decline in net profit to S$39.8m for 1Q13 on a 36% lower revenue to S$150m. 

DBS noted that the weaker performance was due to a drop in residential billings, lower hotel contributions and a marginal dip in leasing income. This was partially offset by progressive recognition of profits from Archipelago.

Here's more:

Earnings buildings blocks in place. Over the next 2 years, UIC’s earnings will likely be boosted by resumption of residential earnings, both from V on Shenton as well as contributions from Singland’s residential projects and growing rental income with the completion of the office portion of the UIC Building redevelopment project.

V on Shenton is currently 60.5% sold and based on cost allocation for this project, we reckon it can achieve a residential PBT margin of at least 30% when completed and fully sold. With the completion of UIC’s project plus the planned AEI at OUE’s properties along Shenton Way and completion of Guocoland’s mixed development at Tanjong Pagar, we believe the entire area would be rejuvenated. 

Maintain Hold. We retain our HOLD recommendation for UIC with a slightly higher TP of S$3.03. Singland currently accounts for 78% of UIC’s gross asset value while the redevelopment of UIC Building makes up another 11%.

We believe as Singland’s underlying value becomes more transparent, UIC’s valuation and share price would potentially have more upside risk.