TEE International plans to unlock the value of its real estate business by spinning it off and listing it separately on SGX. It intends to keep a 70-75% stake in the property business, which TEE sees as a valuable source of future earnings. TEE plans to pay out part of the proceeds raised from the listing as a special dividend and use the rest to fund its expansion into new ventures. We have changed our valuation model to better capture the value of TEE’s real estate business using the RNAV surplus method. This gives us a fair value estimate of S$0.34 per share for TEE (previously S$0.28), implying a potential upside of 7% from its last traded price of S$0.315. We have not factored in any potential gains from the real estate spin-off. TEE could see further upside in the current financial year as more revenue from its property projects is recognised. We maintain our HOLD rating.
Property business spin-off in progress
TEE International plans to spin off its real estate business and list it separately on SGX. At a meeting with us, a TEE executive stressed that it intends to retain a 70-75% stake in the business, as its aim is to unlock the value of its property business and not to cash out of a valuable source of future earnings for the group. TEE plans to pay out part of the proceeds from the proposed spin-off as a special dividend and use the rest to fund its expansion into new ventures such as the cement business that it is exploring in Myanmar. The real estate business accounted for 55.7% (S$134.7m) of the group’s total assets at end-FY2012 (31 May), as well as 8.3% (S$11.9m) of its revenue and 22.3% (S$4.8m) of its operating profit (excl. finance costs and share of associates’ results) for FY2012.
More efficient funding options
TEE would like to rely less on bank loans to fund its property projects as it looks to take on bigger projects, but is reluctant to raise more equity capital by selling new shares at the current price, as it believes that the company is undervalued. Listing the real estate business separately would allow the subsidiary to raise equity capital directly to fund the growth of its property business.
Maintain HOLD, fair value raised to S$0.34 per share
We have changed our valuation model to better capture the value of TEE’s real estate business using the RNAV surplus method. We value TEE’s main engineering business at 5x FY13 projected earnings and add this to our estimate of the property segment’s value to arrive at a fair value estimate of S$0.34 per share for TEE (previously S$0.28). This suggests a potential upside of 7% from TEE’s last traded price of S$0.315. We have not factored in any potential gains from the real estate spin-off. TEE could see further upside in the current financial year as more revenue from its property projects is recognised. We maintain our HOLD rating.
TEE International plans to spin off its real estate business and list it separately on SGX. At a meeting with us, a TEE executive stressed that it intends to retain a 70-75% stake in the business, as its aim is to unlock the value of its property business and not to cash out of a valuable source of future earnings for the group. TEE plans to pay out part of the proceeds from the proposed spin-off as a special dividend and use the rest to fund its expansion into new ventures such as the cement business that it is exploring in Myanmar. The real estate business accounted for 55.7% (S$134.7m) of the group’s total assets at end-FY2012 (31 May), as well as 8.3% (S$11.9m) of its revenue and 22.3% (S$4.8m) of its operating profit (excl. finance costs and share of associates’ results) for FY2012.
More efficient funding options
TEE would like to rely less on bank loans to fund its property projects as it looks to take on bigger projects, but is reluctant to raise more equity capital by selling new shares at the current price, as it believes that the company is undervalued. Listing the real estate business separately would allow the subsidiary to raise equity capital directly to fund the growth of its property business.
Maintain HOLD, fair value raised to S$0.34 per share
We have changed our valuation model to better capture the value of TEE’s real estate business using the RNAV surplus method. We value TEE’s main engineering business at 5x FY13 projected earnings and add this to our estimate of the property segment’s value to arrive at a fair value estimate of S$0.34 per share for TEE (previously S$0.28). This suggests a potential upside of 7% from TEE’s last traded price of S$0.315. We have not factored in any potential gains from the real estate spin-off. TEE could see further upside in the current financial year as more revenue from its property projects is recognised. We maintain our HOLD rating.
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