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United Industrial Corporation Ltd’s Latest Earnings: What Investors Should Know

United Industrial Corporation Ltd (SGX: U06) reported its full-year earnings for 2015 last Friday.

United Industrial Corporation, or better known as UIC, develops and invests in real estate. The firm is an owner of properties such as the Singapore Land TowerClifford Centre, West Mall, and SGX Centre 2. UIC’s businesses are organized into four segments, namely Property Investment, Property Trading, Hotel Operations, and Technologies.

You can learn more about the sprawling United Overseas group and how UIC fits into the overall picture right here.

Financial highlights

The following’s a quick summary on the latest financial figures from UIC:

  1. For 2015, UIC’s revenue was up 16% to $807 million.
  2. Profit attributable to shareholders, though, fell by 35% to $261 million. Much of the fall can be traced to the lower gain in fair value of the company’s investment properties (down by 89% to $18 million) that was recorded in 2015. In contrast, profit before the fair value gain on investment properties and income tax expense was down by a much smaller 4% to $312 million when compared to 2014.
  3. Consequently, UIC’s earnings per share (EPS) was down 35% from 28.7 cents in 2014 to 18.6 cents per share in 2015.
  4. Cash flow from operations came in at $278 million for 2015. Capital expenditure was just $4.8 million. This gave UIC positive free cash flow of around $274 million, up from the $192 million seen in 2014 ($196 million in cash flow from operations and $4.5 million in capex). To be sure, UIC also spent about $84 million in 2015 for the upgrading of its investment properties and redevelopment of investment properties.
  5. UIC’s net asset value per share also grew from $4.09 in 2014 to $4.24 in 2015.
  6. As of 31 December 2015, UIC had $72 million in cash and equivalents and borrowings of $1.4 billion. This is an improvement from a year ago when UIC reported $69.4 million in cash and equivalents and borrowings of $1.67 billion.

In all, UIC experienced growth in its top-line, but saw its profits slide on the back of lower gains in its properties’ fair value. More importantly, its operating cash flow grew significantly on better working capital control, while its balance sheet looked healthier compared to the year before. Net asset value also inched up by 3.7%.

The company’s board of directors had proposed a first and final dividend of $0.03 per share for 2015, unchanged from a year ago.

Operational highlights

The Trading Properties segment was the main contributor to UIC’s top-line growth. The segment’s revenue grew to $291 million for the year, up from $184 million the year before. The gain offset the lower gross rental income (from Investment Properties) for 2015, which slid from $276 million in 2014 to $271 million. Elsewhere, Hotel Operations and Technologies recorded revenue of $149 million and $86 million respectively, an increase of 1% and 11% from a year ago.

Unfortunately, cost of sales for UIC grew faster than revenue, expanding by 27% in 2015. Higher cost of sales for the properties held for sale was the culprit, resulting in lower gross profits for UIC. The real estate company’s gross profit only increased by 2% in 2015.

The management team also added the following commentary on the company’s future outlook in the earnings release:

“With the uncertain global economic outlook and the increase in office supply rolling out in 2016, office leasing demand is expected to remain weak. Demand in the residential property market will continue to be soft with the government indicating that the cooling measures are unlikely to be eased in the short term.

The Singapore retail market continues to face challenges from online retailing and poor consumer sentiments. The hotel industry is expected to remain competitive with increased supply of city hotels.”

Foolish summary

As of its closing price of $2.96 last Friday, UIC traded at a price-to-book ratio of around 0.7 and has a dividend yield of 1%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.