TEE International’s 2QFY13 results were below our expectations, with net profit falling 32.9% YoY to S$2.5m (taking 1HFY13 net profit to S$5.3m, just 24% of our full year forecast), due mainly to a sharp drop in associates’ contributions and higher tax expenses. We believe that the recent run-up in TEE’s share price is related to its plan to spin off its real estate business and the prospect of a special dividend if it succeeds. Given the weak 2QFY13 showing, however, we lower our FY13-14 earnings forecasts and cut our fair value estimate to S$0.28 from S$0.34. We have not factored in any potential gains from the spin-off and we prefer to remain cautious on the stock until its real estate business shows better contributions or the outlook for its engineering segment improves. We maintain our HOLD rating on TEE.
Disappointing 2QFY13 results
TEE International’s 2QFY13 results (three months to 30 Nov) were below our expectations, with net profit falling 32.9% YoY to S$2.5m (taking 1HFY13 net profit to S$5.3m, just 24% of our full year forecast), due mainly to a sharp drop in associates’ contributions and higher tax expenses. Revenue rose 13.5% to S$44.0m, in line with our full-year forecast. TEE raised its interim cash dividend to 0.65 S cent/share from 0.6 S cent a year ago. The fall in associates’ contributions was the result of slower revenue recognition at its Thai real estate associates due to a delay in transferring ownership of completed units to buyers, but those contributions are expected to pick up in the next two quarters, a TEE executive said. Taxes incurred at a project in Brunei were the main reason for the higher tax expense.
Orderbook still healthy, May IPO targeted for property spin-off
Despite the poor results, TEE’s main engineering segment orderbook remains strong at S$183.0m, while its real estate segment has contracted sales of S$48.8m for ongoing residential development projects in Singapore. These exclude its associates’ orderbooks and joint-venture projects. TEE remains cautiously optimistic in its outlook for its engineering segment (still ~90% of its revenue) and is trying to secure more regional projects in markets such as Brunei, the Philippines, Macau and Myanmar. The firm’s plans to spin off its real estate business are on track for an IPO by May, according to TEE.
Fair value cut to S$0.28 per share, maintain HOLD
We believe that the recent run-up in TEE’s share price is related to the spin-off plan and the prospect of a special dividend if it succeeds. Given the weak 2QFY13 showing, however, we lower our FY13-14 earnings forecasts and cut our fair value estimate to S$0.28 from S$0.34. We have not factored in any potential gains from the spin-off and we prefer to remain cautious on the stock until its real estate business shows better contributions or the outlook for its engineering segment improves. We maintain our HOLD rating on TEE.
TEE International’s 2QFY13 results (three months to 30 Nov) were below our expectations, with net profit falling 32.9% YoY to S$2.5m (taking 1HFY13 net profit to S$5.3m, just 24% of our full year forecast), due mainly to a sharp drop in associates’ contributions and higher tax expenses. Revenue rose 13.5% to S$44.0m, in line with our full-year forecast. TEE raised its interim cash dividend to 0.65 S cent/share from 0.6 S cent a year ago. The fall in associates’ contributions was the result of slower revenue recognition at its Thai real estate associates due to a delay in transferring ownership of completed units to buyers, but those contributions are expected to pick up in the next two quarters, a TEE executive said. Taxes incurred at a project in Brunei were the main reason for the higher tax expense.
Orderbook still healthy, May IPO targeted for property spin-off
Despite the poor results, TEE’s main engineering segment orderbook remains strong at S$183.0m, while its real estate segment has contracted sales of S$48.8m for ongoing residential development projects in Singapore. These exclude its associates’ orderbooks and joint-venture projects. TEE remains cautiously optimistic in its outlook for its engineering segment (still ~90% of its revenue) and is trying to secure more regional projects in markets such as Brunei, the Philippines, Macau and Myanmar. The firm’s plans to spin off its real estate business are on track for an IPO by May, according to TEE.
Fair value cut to S$0.28 per share, maintain HOLD
We believe that the recent run-up in TEE’s share price is related to the spin-off plan and the prospect of a special dividend if it succeeds. Given the weak 2QFY13 showing, however, we lower our FY13-14 earnings forecasts and cut our fair value estimate to S$0.28 from S$0.34. We have not factored in any potential gains from the spin-off and we prefer to remain cautious on the stock until its real estate business shows better contributions or the outlook for its engineering segment improves. We maintain our HOLD rating on TEE.
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