OCBC on 7 Mar 2013
TEE International announced recently (22 Feb) that it would inject S$16m worth of its property assets into wholly owned subsidiary TEE Land, as part of its plans to spin off its real estate business and list it separately on SGX by May. Certain pre-IPO investors have also agreed to invest S$4m in TEE Land when the restructuring is complete. Although TEE’s share price has declined in recent days, we expect its share price to remain supported in the near term by expectations of a special dividend if its plan succeeds. Still, we prefer to remain cautious on TEE until we see stronger contributions from its real estate business, after its weak 2QFY13 results. We maintain our fair value estimate of S$0.30 and HOLD rating for TEE.
Restructuring in progress for IPO of property business
TEE International announced recently (22 Feb) that it would inject S$16m worth of its property assets into wholly owned subsidiary TEE Land, as part of its plans to spin off its real estate business and list it separately on SGX by May. Certain pre-IPO investors have also agreed to invest S$4m in TEE Land when the restructuring is complete, TEE said. The proceeds from the investment will be used for general working capital purposes and possibly to acquire new land. The latest announcements are encouraging and we expect more progress updates on the plan in the coming weeks. We believe that a successful spin-off would benefit the group by helping it to unlock the value of its property business. Listing the real estate business separately would also allow the property subsidiary to fund its expansion by raising equity capital directly, reducing its reliance on bank loans.
Potential payout if plan succeeds
Meanwhile, the group is continuing to expand its property business; on 25 Feb, TEE said it had acquired an option to buy a property at 25 Bukit Batok St 22 for S$9.2m, to increase its landbank. TEE has previously stressed that it plans to keep a 70-75% stake in the property business, which it sees as a valuable source of future earnings. TEE has also said that it plans to pay out part of the proceeds from the proposed spin-off as a special dividend and to use the rest to fund its expansion into new ventures such as the cement business that it is exploring in Myanmar.
Still cautious, maintain HOLD
We believe that expectations of a special dividend will help to support TEE’s share price in the near term. Given TEE’s weak 2QFY13 showing, however, we prefer to remain cautious on the stock until we see stronger contributions from its real estate business. We maintain our fair value estimate of S$0.30 for TEE and our HOLD rating on the stock. We have not factored in any potential gains from its planned spin off of its real estate business in our valuation model.
TEE International announced recently (22 Feb) that it would inject S$16m worth of its property assets into wholly owned subsidiary TEE Land, as part of its plans to spin off its real estate business and list it separately on SGX by May. Certain pre-IPO investors have also agreed to invest S$4m in TEE Land when the restructuring is complete, TEE said. The proceeds from the investment will be used for general working capital purposes and possibly to acquire new land. The latest announcements are encouraging and we expect more progress updates on the plan in the coming weeks. We believe that a successful spin-off would benefit the group by helping it to unlock the value of its property business. Listing the real estate business separately would also allow the property subsidiary to fund its expansion by raising equity capital directly, reducing its reliance on bank loans.
Potential payout if plan succeeds
Meanwhile, the group is continuing to expand its property business; on 25 Feb, TEE said it had acquired an option to buy a property at 25 Bukit Batok St 22 for S$9.2m, to increase its landbank. TEE has previously stressed that it plans to keep a 70-75% stake in the property business, which it sees as a valuable source of future earnings. TEE has also said that it plans to pay out part of the proceeds from the proposed spin-off as a special dividend and to use the rest to fund its expansion into new ventures such as the cement business that it is exploring in Myanmar.
Still cautious, maintain HOLD
We believe that expectations of a special dividend will help to support TEE’s share price in the near term. Given TEE’s weak 2QFY13 showing, however, we prefer to remain cautious on the stock until we see stronger contributions from its real estate business. We maintain our fair value estimate of S$0.30 for TEE and our HOLD rating on the stock. We have not factored in any potential gains from its planned spin off of its real estate business in our valuation model.
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