The financial performance of United Engineers (UE) painted a less-than-rosy picture of the property sector. In the second quarter, revenue dipped 8 percent from $96.2 million to $88.1 million. This can be attributed not only to a weak performance from the property segment but also reflects poorly on the engineering and manufacturing segments as well.
Owing to the above, 2Q net profit attributable to shareholders fell 33% to $7.7 million from $11.4 million a year ago.
Looking at the breakdown revealed that the property development segment suffered a 32 percent fall in revenue – the largest single contributor to the lacklustre performance – while manufacturing, a victim of the trade war, dipped 20 percent. The engineering segment saw a 12 percent decline in revenue.
Fortunately for the Group, the property rental and hospitality segment saw a 5 percent increase in revenue which helped to mitigate the overall decline.
Going forward, the Group expects the impact of the cooling measures to weigh on the overall sentiment for residential property while office rentals may soften. This does not seem to augur well for its Dairy Farm project scheduled for sale in 2H19.
The property cooling measures took place in July 2018 and the trade war has been around for a year. We would assume that the management has made preparations for tough times ahead and should have, in their business forecasts, projected that 1H19 results would not be satisfactory.
Why did the management of UE choose to let go of its entire block of treasury shares at $2.58 per share knowing that 1H19 earnings are probably going to be poorer than the second half? We believe the smart management will sell only when the business is good, and the share price is at a peak. Yet, this management has preferred to sell when the business prospects are less optimistic and the share price is near to 52-week low. We are perplexed.
As mentioned in our previous Article, it simply does not make sense to sell at $2.58 when shareholders had earlier voted against the offer of $2.60 made by YPI, a consortium led by Yanlord Land and Perennial Real Estate Holding? This makes the entire share sale look like minority interest is being blatantly ignored.
It begs the question as to whether the management, when trying to offload the 3.14 percent stake, have taken into consideration the interest of the shareholders. Have they procured buyers who would otherwise have paid a higher price for the stake?
As recent as 19 June, Mr Ching Chiat Kwong of Oxley fame acquired as many as 4.7 million shares at $2.58 each while YPI bought 6.1 million shares at $2.51 on 27 February. Two years ago, on 21 August 2017, Oxley raised its stake in UE to 11.57 percent by paying $2.688 per share. Assuming Oxley was willing to pay this price for the 3.14 percent stake that was offloaded to the mystery buyers, UE would have raised $2 million more, but the latter did not do so.
In an interview with Business Times, Mr Ching, said, “We need to look at the whole process of how the shares were sold away at this price and see if, objectively, the board and the independent directors got the best value.
“Oxley has been acquiring shares in UE and during the annual general meeting last year (2017), we did specify that if there’s any intention to sell shares or issue rights, can you (the board of UE) let Oxley know. We know the value (of UE) and we will give a reasonable price that helps the company achieve better ground,” he added.
On another note, we have also witnessed declining dividends over the past years. Back in 2016 when OCBC was still a major shareholder, we had a first and final dividend of 5 cents per share and a special dividend of 7 cents per share. When YPI, a consortium led by Yanlord Land and Perennial Real Estate Holding took over the shares from OCBC, they cut the dividend to 4 cents per share. Last year, they cut the dividend further to 3 cents per share. This action has seriously affected the income of many minority shareholders, who bought UE shares for dividend income. Are we expecting further dividend cut from the Yanlord and Perennial management?
We have witnessed how some companies in the past year or so have had to “face the wrath” of minority shareholders who are now more educated and bolder in taking up cases against listed companies who are deemed to have disregarded minority shareholder interest.
The growth of shareholder activism, which was almost non-existent, is now growing. It is important that the Singapore Exchange, the Monetary Authority of Singapore and the Securities Investors’ Association look deeper into minority shareholders’ welfare.