Tee International Ltd expanding into energy infrastructure space

3QFY15 PATMI down 77% YoY to S$0.13m
Tee International (TEE) reported that its 3QFY15 PATMI dipped 76.5% YoY to S$0.13m mostly due to weaker gross margins, and higher admin and finance expenses. In particular, we note that admin expenses increased 14.5% YoY (S$0.7m) given marketing costs incurred for a property development project in Malaysia by TEE Land. 9MFY15 PATMI cumulates to S$2.9m, down 5.6% YoY, which we deem to be below expectations. We revise our FY15 forecast downwards to S$6.0m and introduce FY16 estimates of S$8.8m. The group’s order book for the engineering segment now stands at S$410m, and major projects include Marina One, Tampines Hub and Changi Airport, as well as MDIS Educity@Iskandar, St Regis and The Parisian in Macao.

Expanding into the energy infrastructure space
TEE also recently expanded into the energy infrastructure space and, in Feb 2015, entered into a JV agreement to construct a 25 MW green-field power plant in Iligan, Philippines and a power sales agreement to supply power to a nearby cement plant and to the City of Iligan, Mindanao. The total off-take of the two power sales agreement will amount to 20 MW out of the total 25 MW capacity. We understand that the group is looking to further expand their energy portfolio in the Philippines.

Rated HOLD with S$0.24 FV estimate
Looking ahead, the group expects the competitive operating environment to stay challenging and will take a prudent stance in evaluating growth prospects in Singapore and the region. That said, while management are cautious on the muted property market in Singapore and Malaysia, it is confident of the long term prospects of the real estate market in Thailand, New Zealand and Australia; and the group’s real estate subsidiary, Tee Land, has recently acquired another hotel in Sydney, Australia, and a property in Christchurch, New Zealand. We have a HOLD rating on TEE with a fair value estimate of S$0.24.

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Tee International is expanding into the energy business and makes its first foray into the Philippines by subscribing to a 21.05% stake in PowerSource Philippines for ~S$4.87m.

TEE International climbing back to normalcy

As anticipated, TEE’s PATMI showed a strong 73.8% QoQ increase to S$1.6m in 2Q14 from S$0.9m in 1Q14. That cumulates to a S$2.5m profit for 1H14 – down 52.4% YoY - but we continue to forecast earnings to show YoY growth in a back-loaded FY14 as stronger profit contributions from Tee Land (its property development subsidiary) and engineering projects would kick in over 2H14.

The group announced that Tee Land has recently acquired for S$45.2m the Long House at Upper Thomson Road which would be redeveloped into a mixed residential and commercial project. The land cost translates to S$890 psf GFA which we view to be fairly decent in view of estimated overall breakeven average selling prices of around S$1.4 – S$1.5k psf. Management has declared an interim dividend but will announce the exact details at a later date.

On an overall basis, we judge 2Q14 results to be mostly in line. We would speak further with management about this set of results and, in the meantime, maintain BUY with a fair value estimate of S$0.35.

FY13 figures hit by admin expenses

Hurt by bump in administrative expenses
TEE reported 4Q13 PATMI of S$6.4m, down 45% YoY mostly due to a S$4.1m increase in administrative expenses. Tee reported that these expenses were incurred for marketing property development projects and also included administrative expenses for its newly acquired integrated turnkey material handling subsidiary. Due to this, FY13 PATMI of S$13.1m was judged to be somewhat below our full year expectations. We note, however, that FY13 top-line increased 51% to S$216.4m as the group recognized higher levels of contributions from engineering and property development projects. The order book of the Engineering segment now stands at S$215.4m, which remains fairly stable on a YoY basis. In addition, TEE also proposed a final dividend of 2.5 S-cents per share.

Successful listing of property segment - Tee Land Limited
Over the last quarter, the group successfully listed its property development segment on the SGX Mainboard as Tee Land Limited. We believe this will yield a few key benefits. First, a separate listing structure will allow the equity market to value the property segment alongside similar property peers. Second, this IPO raised significant capital for the group which will be