OCBC - TEE International - Building on strong earnings growth at $0.37

By Ritesh Menon Thu, 26 Jul 2007, 17:04:26 SGT

TEE International’s (TEE) revenue jumped 27.4% YoY to S$58.9m in FY07 and net profit rose by a strong 91.3% to S$2.0m in FY07. This was slightly higher than our forecasted net profit of S$1.8m. Property development and acquisition strategy is in full swing with further acquisitions at Sixth Avenue and a prime residential property Merlin Mansion at East Coast Road. TEE has declared 0.4 cents net dividend per share payable on 21st Nov 2007 if approved. We are raising FY08 net profit estimate to S$2.8m and our fair value estimate from 21 cents to 37 cents per dilutive share based on 15x FY08 PER. Recently, with the strong interest in construction and property stocks, TEE’s share price spiked up sharply, moving from S$0.265 cents on 2 July 07 to a recent high of S$0.59, or up a whopping 122.6%. As TEE has already exceeded our fair value estimate, we are downgrading TEE from a HOLD to a SELL.

FY07 results were slightly higher than forecasted. TEE International’s (TEE) revenue jumped 27.4% YoY to S$58.9m in FY07, which was close to our forecasted figure of S$59.2m. Gross profit remained healthy, rising 40.9% HoH in 2H07 which drove gross profit 24.7% YoY higher to S$7.8m in FY07, and this is in line with our forecast of S$7.7m. EBIT rose 60.8% and net profit jumped by a whopping 91.3% to S$2.0m, slightly higher than our forecasted net profit of S$1.8m.

Property development and acquisition strategy is in full swing. TEE continues its property acquisition strategy, adding on acquisitions from Sixth Avenue and a prime residential property No. 257 to 261 Merlin Mansion at East Coast Road on top of its prior acquisitions at Thomson Road, Cairnhill Circle and Rambai Road. TEE expects to fund 90% of these acquisitions through bank borrowings, as we have mentioned before, this could place a short-term strain on its operating cash flow. TEE intends to redevelop its property acquisitions into luxury apartments, which we expect would boost TEE’s earnings in FY08 and FY09.

Awarded construction project in Thailand. TEE’s group associate, Trans Equatorial Indochina Co, has received a letter of intent from Ananda Developments Co Ltd for the partnership to build at least 100 home units at Waikiki resort Thailand. Management guided that this contract was estimated to boost revenue by S$7m. TEE has not commented on the date of commencement and completion.

Strong growth outlook, but share price is over-valued. TEE has declared 0.4 cents net dividend per share payable on 21st Nov 2007. We are raising the FY08 net profit estimate to S$2.8m and our fair value estimate from 21 cents to 37 cents per dilutive share for FY08, based on 15x PER. With the recent strong interest in property and construction stocks, TEE’s share price spiked up a whopping 122.6% from S$0.265 on 2 July 07 to a recent high of S$0.59. As TEE has already exceeded our fair value estimate, we are downgrading TEE from a Hold to a SELL.

Please refer to the full report for more information and additional disclosures.