Thursday, November 29, 2012

TEE International: Proposed Spin-Off And Myanmar Venture Set The Stage For Future Growth

23 NOVEMBER 2012
TEE International: Proposed Spin-Off And Myanmar Venture Set The Stage For Future Growth
By Ong Qiuying

From a general electric contractor to a recognised engineering and integrated real estate group, TEE International has indeed come a long way. Shares of TEE have been steadily climbing higher this year, even peaking at an all-time high of $0.35 on 14 November, representing a 52.2 percent increase from its $0.23 closing price on 30 December 2011 despite all the chatter of an economic downturn and uncertain outlook in the global markets.

The age-old adage of “slow and steady wins the race” certainly reflects TEE’s progress as the steady performance of TEE was by no means chance, but over years of laying a strong foundation in building its capabilities as well as expanding its regional reach across Thailand, Malaysia, the Philippines, Cambodia, Brunei, Vietnam and China. TEE has been delivering a positive report card over the last few years with a compounded annual growth rate of 28.5 percent from FY08 to FY12 and even posted record high revenue in FY11 fuelled by its twin growth engines in engineering and real estate.

Shares Investment had the opportunity to catch up with Yap Shih Chia, Director of Corporate Finance and Strategy of TEE in an exclusive interview, where he shared his views on the company’s recent proposed integrated real estate listing and Myanmar venture.

Real Estate Spin-Off
Sending TEE’s shares to its peak on 14 November was news on its restructuring of business by spinning-off its integrated real estate segment and listing it on the Main Board of the Singapore Stock Exchange (SGX). Yap commented that its real estate business has improved over the years as the company picked up the skills and expertise in the trade, and the proposed listing of the business unit is the way to go for the segment to grow further.

He pointed out that the listing of its integrated real estate business division will enable shareholders to unlock the value of the business and at the same time, recycle capital for its parent company for more strategic investments. Furthermore, the capital intensive real estate business will be able gain access to additional financing upon listing. “We are in the midst of rolling out plans for the listing of the real estate business and most importantly, awaiting the approval-in-principal from the SGX. Barring any unforeseen circumstances, the listing is targeted to complete by May 2013,” Yap remarked.

On the regional outlook and prospects for the real estate business, Yap is certain that TEE will be able to leverage on its contacts in the Southeast Asian countries where its engineering business is already present and tap on the region’s fast-growing trends. He highlighted that although Singapore has been and will continue to be the company’s bread and butter, the regional expansion is also diversification of government policy risks that seeks to cool the property market in Singapore.

Currently, about 75 percent of its real estate projects are in Singapore and the remaining overseas.
Yap shared that the company aims to continue exploring overseas opportunities targeting the local needs and demand to increase revenue from overseas real estate developments to 40 percent in future. He added that TEE has been successful in Thailand so far and the recent development in Malaysia would provide a boost, citing the newly acquired 5.95 acre of land worth RM32.1 million in Cyberjaya, Selangor to be developed into a mixed use project comprising of retail and “Small Office, Flexible Office” (SOFO) units.

Grabbing A Slice Of Myanmar
As with the recent buzz over its Myanmar venture, Yap noted that like most companies, TEE is looking out for Myanmar as it has a huge economic potential. As Yap puts it, “If you don’t start today, you might miss the boat.” The group, together with Ayeyarwaddy Cement, backed by A1 Group of Companies, would be operating a cement plant via a joint venture, which will occupy 1,100 acres in Ngayoke Kaung Village, Ngaputaw Township, Ayeyarwady division following a seven-month technical study of the project.

“We will be cash flow positive from day one the cement plant is operational, but to recover the entire investment would take about eight years given that the project is rather large scale and total costs are estimated to be between $250 million to $300 million,” Yap remarked.

Nonetheless, TEE is optimistic on the profitability of the venture as not only is the cement plant located nearby to an estimated 116 million tonnes of limestone deposits, which is an essential raw material for manufacture of Portland cement and bring cost savings on transportation, there will also be strong demand for cement as it is the core raw material needed for basic infrastructure that comes hand in hand with nation building in Myanmar.

Continuing Growth Across All Businesses
Not neglecting its engineering business, Yap happily shared that the group has several on-going projects in the region, such as the design and building works for foreign workers dorms and mass housing projects in Thailand and Brunei as well as infrastructure works in Malaysia for water treatment plant and Kuala Lumpur LRT extension project. Yap revealed that the group is also eagerly exploring possible projects in Christchurch, New Zealand after a series of earthquakes two years ago, spelling new potential avenues of growth.

Asked if the spin-off of its real estate business would affect the future dividend payouts, Yap said that investors need not fret as its engineering business, which is currently the bulk revenue contributor, remains well positioned to tap on opportunities in the market and the spin-off would provide further capital appreciation potential for the company.

All in all, TEE appears on track for a trajectory of growth and the array of plans TEE has in place could provide investors with possible upside surprises once they roll out. SIAS Research maintains an “Increase Exposure” rating on the stock with $0.45 intrinsic value.

Publish date: 23/11/12


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