TEE International: FY13 earnings marred by admin expenses

Summary: TEE reported 4Q13 PATMI of S$6.4m, down 45% YoY mostly due to a S$4.1m increase in administrative expenses. Due to this, FY13 PATMI of S$13.1m was judged to be somewhat below our full year expectations. The order book of the Engineering segment now stands at S$215.4m, which remains fairly stable on a YoY basis. We like management's active stance on seeking accretive acquisitions; note that TEE recently announced an MOU to invest in a waste-water treatment plant in Huzhou, China and also formed a JV for a S$8.6m 3-year contract for a water management project near Chao Phaya River, Thailand. We currently have a HOLD rating on TEE with a fair value estimate of S$0.38. However, given the attractive dividend of 2.50 S-cents ahead, which translates to a yield of 6.8% on the last closing price of S$0.37, we believe the downside may be capped from here.

Hurt by bump in administrative expenses

TEE reported 4Q13 PATMI of S$6.4m, down 45% YoY mostly due to a S$4.1m increase in administrative expenses. Tee reported that these expenses were incurred for marketing property development projects and also included administrative expenses for its newly acquired integrated turnkey material handling subsidiary. Due to this, FY13 PATMI of S$13.1m was judged to be somewhat below our full year expectations. We note, however, that FY13 top-line increased 51% to S$216.4m as the group recognized higher levels of contributions from engineering and property development projects. The order book of the Engineering segment now stands at S$215.4m, which remains fairly stable on a YoY basis. In addition, TEE also proposed a final dividend of 2.5 S-cents per share.

Successful listing of property segment - Tee Land Limited

Over the last quarter, the group successfully listed its property development segment on the SGX Mainboard as Tee Land Limited. We believe this will yield a few key benefits. First, a separate listing structure will allow the equity market to value the property segment alongside similar property peers. Second, this IPO raised significant capital for the group which will be key for further growth for the engineering, infrastructure and property development businesses.

Attractive dividend of 2.5 S-cents per share

We are impressed with management's active stance on seeking accretive acquisitions; note that TEE recently announced an MOU to invest in a waste-water treatment plant in Huzhou, China and also formed a JV for a S$8.6m 3-year contract for a water management project near Chao Phaya River, Thailand. In addition, we understand that management is keen to increase its recurring income component and grow its infrastructure business in the region. We currently have a HOLD rating on TEE with a fair value estimate of S$0.38. However, given the attractive dividend of 2.50 S-cents ahead, which translates to a yield of 6.8% on the last closing price of S$0.37, we believe the downside may be capped from here.