TEE International

By Eli Koksiong Lee , OCBC
http://www.ocbcresearch.com/Article.aspx?type=research& id=20140102140949_93473

After its 1QFY14 results miss in Oct-13, TEE?s share price has drifted steadily down to S$0.29 - near its 52-week low. We see significant value at these levels and upgrade the stock to a BUY with an unchanged FV estimate of S$0.35. Our investment thesis rests on three components: 1) 1QFY14?s results miss was likely a temporary blip due to one-time charges, and we continue to forecast FY14 PATMI to grow 27% YoY, with sequential earnings improvement to be seen from 2QFY14 onwards 2) the fundamentals of the group?s businesses remain sound management recently announced, in Dec-13, a significant S$142.2m contract win for the Marina South Mixed Development project which boosted TEE?s order book to a healthy S$317m 3) we are forecasting for a 2.1 S-cent dividend in FY14, which translates to a fairly attractive 7.2% yield at current prices and could likely cap significant downside risk from here.

Significant value near 52-week low - upgrade to BUY
After its 1QFY14 results miss in Oct-13, Tee International?s (TEE) share price has drifted steadily down to S$0.29 - near its 52-week low. At these levels, we see significant value in Tee?s shares and upgrade our rating on the stock to a  BUY. Our fair value estimate remains unchanged at S$0.35 per share. 

Still expecting YoY earnings growth in FY14 despite 1Q miss
Our investment thesis rests on three components: 1) 1QFY14?s results miss was likely a temporary blip due to one-time charges, and we continue to forecast FY14 PATMI to grow 27% YoY, with sequential earnings improvement to be seen from 2QFY14 onwards 2) the fundamentals of the group?s businesses remain sound management recently announced, in Dec-13, a significant S$142.2m contract win for the Marina South Mixed Development project which boosted TEE?s order book to a healthy S$317m 3) we are forecasting for a 2.1 S-cent dividend in FY14, which translates to a fairly attractive 7.2% yield at current prices and could likely cap significant downside risk from here.

1QFY14 blip mainly due to one-time charges
To recap, 1QFY14 PATMI dipped 67.5% YoY to S$0.9m mostly due to S$1.9m in unrealized foreign currency losses and a S$2.8m spike in admin expenses. The increase in admin expenses consist of a one-time S$1.1m incentive payment to employees, S$0.7m from the newly acquired integrated turnkey material-handling subsidiary, and staff costs from a higher headcount. As a result, 1QFY14 PATMI constituted only 4.1% of our FY14 forecast but, if adjusted for the one-time incentive payment and currency losses, core PATMI (estimated at S$5.6m) would have made up 25.0% of our forecast and been in line. After a recent analyst briefing with management, we understand that these one-time items are unlikely to recur, and we expect 2QFY14 earnings to likely improve both on a QoQ and YoY basis.   ...lst: $0.30...