TEE-ed Up and Growing
Intrinsic Value $0.585
Prev Closing S$0.355
TEE Land Ltd (TEE Land) released its 1Q FY14 results with a 277% YoY increase in revenue to S$13.6m and a 22% YoY decrease in PATMI to S$0.6m. The increase in revenue was mainly due to the increase in revenue recognition for 91 Marshall and The Peak @ Cairnhill 1. The decrease in PATMI was mainly due to an increase of S$0.8m of administrative expenses driven by higher staff costs for TEE Land’s expanding property development activities, and an increase of S$0.8m of other operating expenses arising from the remainder of the IPO expenses and foreign exchange losses due to the depreciation of the Malaysian ringgit against the Singapore dollar.
TEE Land is acquiring an industrial building at 25 Bukit Batok Street 22 which will serve as the new headquarters for TEE International and TEE Land. TEE Land increased its presence in Thailand with the proposed purchase of 2 plots of freehold land in Bangkok for S$11.1m. The plots are scheduled for residential property development and would serve to increase the share of results of associates in the next few years. Maintain recommendation at Increase Exposure at S$0.585.
Contracted S$66m of property sales in Singapore: We estimate TEE Land to have approximately S$200m of project earnings to be recognized till FY16 based on their current developments and take up rates. In addition, TEE Land’s share of results from associates should continue to increase as take up rates for their Thailand projects improve.
On the lookout for opportunities: TEE Land continues to seek suitable land plots in the eastern side of Singapore to replenish their landbank. The company remains conservative in bidding to avoid the risk of overpaying. Concurrently, the company is considering the possibility of acquiring more land in Thailand for residential developments and in Malaysia for mixed development. The learning experience from the Workotel in New Zealand could also spur TEE Land to consider more projects in New Zealand or in Australia.
Company Update: TEE Land continues to be on the lookout for land acquisition opportunities in Singapore and in overseas markets. In Singapore, the company is looking for freehold land in the eastern side of Singapore. This is in line with the company’s strategy to focus their Singapore developments in the eastern side, where the land plots are sizable enough to allow them to build boutique-sized apartments. The company remains conservative in their bidding approach due to the slew of property cooling measures implemented.
Most of TEE Land’s Singapore projects are close to fully sold as most of the buyers have made their purchases prior to the property cooling measures. The only projects that have lower take up rates are The Peak @ Cairnhill 1 (65% sold) and the commercial portion of the NeWest (~60% sold). However, we expect sales volume to increase due to the favourable location of the properties and the possibility of competitive pricing for the remaining units. Hence, the risk of TEE Land holding on to unsold units is relatively low.
The company has already begun revenue recognition for 91 Marshall and The Peak @ Cairnhill 1, with revenue from 448 @ East Coast already fully recognized. This leaves TEE Land with revenue from at least five projects to be recognized. The company has recently completed an acquisition of an industrial building in Bukit Batok Street 25. Upon completion, the building will serve as the new headquarter office for both TEE International and TEE Land. Assuming that the building will be refurbished and at prevailing rental rates, we estimate rental revenue of S$1.2m annually.
In Malaysia, the company remains on track to develop the Cyberjaya project. The land can be used for a mix of residential and commercial purposes. Situated next to Shell (Malaysia) headquarters and other multi-national corporations’ offices such as HSBC, Emerio and Ericcson, the development is poised to take advantage of the expected population increase and lack of housing in Cyberjaya.
In Thailand, the company continues to work with their joint venture partners in building affordable and quality housing. TEE Land is maintaining its strategy of sourcing for freehold land in the suburbs area of Bangkok near to the MRT. This allows them to tap into the demand of those who are looking to stay in Bangkok but are not able to afford the higher housing prices in the city. At the same time, as the land is located in the suburbs, the underlying purchase price is also lower which allows the TEE Land to maintain a healthy margin.
TEE Land has recently completed and handed over 4 flatted factories in Tambon Map Yang Phon. Another factory is nearing completion and should be ready for handover by the end of this year. The company is starting on the second phase for the remainder of the 5 factories and we expect it to be completed by the 2014. This project is a first for TEE Land in developing flatted factories under the ‘Boutique’ brand. It is probable that the company can build on this success and take on similar projects in the future.
In New Zealand, the Workotel project should be completed by the end of the year. When completed, the Workotel will serve as a hostel for the reconstruction workers in Christchurch. As Christchurch is still undergoing reconstruction following the 2011 earthquakes, we anticipate high occupancy rates for Workotel upon opening. Once completed, both the Workotel and the Bukit Batok building will be able to provide stable rental income for the company in the next few years.
The learning experience in New Zealand could also serve as a platform for TEE Land to take on more projects in New Zealand and neighboring Australia. Besides the building of similar projects like the Workotel, it is probable that the company export its expertise in building boutique-sized apartments to these countries as well.
Our forecasts and estimates on TEE Land remains unchanged as the company is on track with its development projects. Based on the latest contracted sales, we estimate the company to have approximately S$160m of project earnings to be recognized over the next few quarters. TEE Land’s remaining projects are close to fully sold, we have lowered our discount factor to 15% and maintain our intrinsic value at S$0.585. Increase Exposure.
Publish date: 18/10/13