Rewarding Shareholders After Higher YoY Profits
Intrinsic Value S$0.545•
Prev Closing S$0.315•
TEE Land Ltd (TEE Land) recently announced its 2QFY14 results with a 23.3% decrease in revenue to S$2.4m (2QFY13: S$3.2m) and an 82.9% increase in gross profit to S$1.1m (2QFY13: S$0.6m). This was due to fewer revenue recognition from the existing projects, with revenue recognized for The Peak @ Cairnhill 1 and rental revenue from the ‘Workotel’ in New Zealand. This takes TEE Land 1HFY14 revenue to S$16m with gross profit coming in at S$2.7m. PATMI for 2QFY14 stood at S$1.6m, which was mainly boosted by an S$1.7m contribution from the share of associates. The company is also declaring an interim dividend of S$0.005/share.
The company has contracted sales of S$64m for its property development projects (excluding share of associates) in Singapore and another S$16.7m in Thailand. We expect revenue to be recognized progressively till FY15, and assuming even revenue recognition, this could lead to revenue recognition of S$25m for 2HFY14, thus bringing TEE Land’s FY14 revenue to S$41m.
TEE Land will be launching several projects in the coming quarters with three launches in Singapore and one launch in Malaysia. We expect contribution from these launches to begin from FY15 and last till FY17. As two of the launches in Singapore are joint ventures, contribution will only come in at the bottom line which we forecast to be S$16.1m. As for the other two launches, we forecast revenue contribution to come in at S$84m.
The company remains on the look out for land acquisitions in South East Asia, with the focus primarily on Singapore, Kuala Lumpur and Bangkok. Locally, TEE Land continues to prefer small and mid-sized land plots which are cheaper and require less capital. Overseas, the company takes advantage of the lower land costs to purchase larger tracts of land plots at locations situated near developed infrastructure.
Based on upcoming project launches, recent acquisitions and prevailing market conditions, we adjust our estimates to reach an intrinsic value of S$0.545 and maintain our recommendation at Increase Exposure.
Company update: TEE Land’s performance for 2QFY14 declined due to revenue recognition coming mainly from its residential project at The Peak @ Cairnhill 1. However, this was supplemented by rental income from the company’s ‘Workotel’ development in New Zealand. We estimate that progress billings from The Peak @ Cairnhill 1 contributed S$2m with the remaining S$0.4m coming from the rental revenue at ‘Workotel’.
Administrative expenses rose by S$0.7m mainly due to higher staff head count. This took the 1H FY14 administrative expense to S$1.4m. The company has expanded the number of operational staff in Singapore, Malaysia and Thailand in order to handle the ongoing development projects and to scour and assess potential acquisition sites. We expect administrative expenses to maintain at this level for the next few quarters.
Contribution of S$1.7m from the company’s joint venture developments in Singapore and Thailand pushed PATMI to S$1.6m for 2QFY14. The contribution from the company’s joint venture developments were even between Singapore and Thailand. We expect contribution from the share of associates to maintain at this level for the coming quarters.
Launching in Singapore and Malaysia: The company will be launching three new development projects in Singapore and one development project in Malaysia: Twelve Residences (cluster terraces, 100% owned), Rezi3Two (condominium, 45% stake), TRIO (commercial, 30% stake) and Third Avenue at Cyberjaya (residential and commercial, 100% stake). Based on their locations, we expect Twelve Residences (district 19) to sell at S$1,400 to S$1,600 psf and Rezi3Two (district 14) to sell at S$1,200 to S$1,400 psf. We estimate that this will contribute S$13.2m in revenue and S$7.3m in share of associates from FY15 to FY17.
TRIO is a 4-storey commercial development located at Sam Leong Road (district 8). We expect selling prices to range from S$3,800 to S$4,500 psf and this will contribute S$8.8m in share of associates from FY15 to FY17. TEE Land is currently planning to launch the residential component of Third Avenue at Cyberjaya by 1H 2014. With current market prices for condominiums at Cyberjaya hovering between MYR500 to MYR 800, we estimate total revenue contributions from the residential component of Cyberjaya to come in at S$70.8m (after adjusting for exchange effects) from FY15 to FY17.
Land acquisition and development plans: TEE Land remains on the look out for potential land acquisitions in Singapore, Kuala Lumpur and Bangkok. The company has recently completed an S$45.2m acquisition for Long House Food Centre situated near Marymount MRT station. The site has a size of 16,950 sq ft and is marked for mixed development. Based on the plot ratio and TEE Land’s past projects, we estimate that up to 40 units can be built with an average size of 875 sq ft. This would generate approximately S$52.5m in revenue based on the current market price of S$1,500 psf
In addition, the site can accommodate up to 8 commercial units with an average size of 2,000 sq ft. This would bring in an additional S$72m in revenue based on the current market price of S$4,500 psf. In total, we estimate that the Long House project could bring in S$124.5m in revenue upon completion. We expect construction work to start in 1H 2015 and end by 2018.
The company maintains a conservative approach in purchasing land in Singapore due to the slew of cooling measures and higher land prices. Hence, TEE Land prefers to purchase land that is smaller in size. This reduces the land cost and the related developmental costs. In addition, the turnaround time from purchase to completion for sales is faster, leading to stronger cash flow.
Overseas, TEE Land takes advantage of lower land prices to secure larger tracts of land near existing infrastructure. The higher human traffic flow increases the possibility of ready demand for the projects when they are completed. The Memorandum of Understanding signed in July last year to develop the ‘Boutique’ line of industrial estates serves as an indication that the company may buy industrial land in Thailand to build flatted warehouses and lease out for rental revenue.
Valuation and forecast: Based on prevailing market conditions and developments, we have revised our estimates and forecasts. In addition, we revalued TEE Land's existing development projects to reflect the change in market sentiment following the slew of cooling measures announced in previous years. We arrived at an intrinsic value of S$0.545 per share and maintain recommendation at Increase Exposure.