SINGAPORE (Jan 15): Phua Chian Kin, CEO of TEE International, credits US casino magnate Sheldon Adelson for inspiring him to widen his company’s recurring income base. Phua met the chairman of Las Vegas Sands a decade ago, when TEE International was in the midst of constructing parts of Marina Bay Sands. The way Phua tells it, Adelson said to him: “CK! Thanks for helping me finish this project. Now, with all the people coming to tarik the jackpots, I can sleep better at night!”
Since then, TEE International has been acquiring stakes in infrastructure projects. Like an integrated resort, these require significant upfront investment and may involve long gestation periods, but can generate steady revenues without too much subsequent effort. For example, TEE International invested in a Philippines power plant in 2014, which could start generating revenue in the second half of this year. “It will be like a faulty flowing tap,” says Phua, referring to the revenue that is to come. “You want to turn it off, also cannot.”
Most recently, on Dec 29, 2017, TEE International completed its acquisition of a stake in a waste management company called Chiang Kiong Environmental, which Phua says will literally make money while he sleeps at night: Its fleet of 60 trucks rumbles around Singapore in the wee hours of the morning, collecting rubbish from commercial buildings and shopping centres.
TEE International and another locally listed company, Advancer Global Holdings, jointly invested $18.5 million in Chiang Kiong Environmental. TEE holds a controlling stake of 50.1% in the company. Advancer, which operates a maid agency and provides facilities management services, has a 20.1% stake. The remaining 29.8% of the company is held by an unnamed party. According to Phua, Chiang Kiong Environmental might expand into waste-to-power generation. However, in the immediate term, it will focus on ensuring the waste collection business is feasible and stable.
In the meantime, TEE International is venturing into solar energy. On Oct 12, the company said it had formed a 51:49 joint venture with Malaysian Solar Resources, which manufactures solar panels. Phua sees plenty of potential for this company to expand in Singapore. In fact, the Housing and Development Board has plans to widen the installation of solar panels on HDB rooftops so that the power generated can complement existing sources.
To be sure, TEE International is not the only company keen on entering this market. For instance, privately held Sunseap is well-established in this field and has already secured many sizeable contracts from HDB and other customers. However, Phua is hoping that HDB will “distribute the cake” and not rely on just one contractor. “There’s room for one or two more players, and hopefully we can squeeze in. This is potentially a very big market,” he says.
Raising funds, selling assets
On Dec 19, TEE International said Pierfront Capital, whose shareholders include Temasek Holdings, will provide it with US$15 million ($20 million) in funding for up to five years to take on bigger infrastructure projects. “The investment is by way of a credit instrument, structured in a manner that allows us to have some form of upside sharing when TEE International does well,” explains Chua Wei Teck, a director at Pierfront.
Separately, TEE International has been selling assets. On May 5 last year, the company said it would dispose of a 37.21% stake in CMC Infocomm, a telecommunications engineering company listed on the Singapore Exchange, for almost $5.4 million, which is equivalent to about 9.5 cents a share. TEE International managed to book a net gain of almost $1.2 million from the sale.
The buyer of the stake is a unit of Shanghai Yinda Science and Technology Industrial Co, which is in a similar industry as CMC Infocomm. TEE International continues to hold more than 7.4 million shares in CMC Infocomm, which are equivalent to a 4.9% stake. CMC Infocomm, which has been renamed Yinda Infocomm, hit the market only in August 2015 at 25 cents a share.
More recently, on Dec 20, 2017, TEE Land said it would divest a 31.88% stake in Thailand-based property developer Chewathai to its joint-venture partner, Chartchewa, which is controlled by the Panichewa family. Chewathai was listed on the Stock Exchange of Thailand in April 2016 at THB1.60 a share. TEE Land is selling its stake for a total of THB318.03 million ($13.1 million), or THB1.33 a share. An extraordinary general meeting will be held on Jan 24 to seek its shareholders’ approval. If the deal goes through, TEE Land will book a net loss of $6.15 million. TEE Land is 54.33%-owned by TEE International.
For now, TEE International is reporting lacklustre financial results. For its 1QFY2018, which would be the three months to Aug 31, 2017, the company reported a 9.6% y-o-y rise in revenue to $70.1 million but a net loss of $918,000 versus earnings of $648,000 in the same quarter the prior year. This was due to losses booked by its joint ventures and associates. For the most recent full financial year ended May 31, 2017, the company was in the red as well, with losses of $961,000 on revenue of $266.6 million.
Things are not likely to get better immediately. TEE Land has said that it plans to book an impairment of $6.2 million for its 2QFY2018 quarter ended Nov 30, 2017, which will result in the company reporting a loss. TEE International, with its majority stake in TEE Land, has also said it will be reporting a loss for that quarter. The company will report its results on Jan 14.
Engineering, property
On a more positive note, things appear to be looking up for TEE International’s core engineering business. On Oct 23, 2017, the company announced that it had clinched contracts worth $56.5 million from the Land Transport Authority to design and install noise barriers along stretches of MRT tracks. On Dec 12, the company announced that it was appointed a sub-contractor by Dragages Singapore for air-conditioning, electrical and related work for CapitaLand’s redevelopment at Market Street. These recent contract wins have increased TEE International’s order book to $318 million.
“I think we can go one notch higher,” says Phua, who thinks TEE International has the capability and resources to aim for an order book of around $500 million. In an effort to reach this goal, the company recently hired Janet Ang, a qualified professional engineer and former consultant, to spearhead business development efforts. The company is also putting in place more efficient processes for its engineering work.
TEE Land could also ride a possible upturn in the property sector after making a spate of acquisitions in recent months that now appear to have been well-timed. On Sept 18, TEE Land announced it was buying six adjacent freehold plots at Seraya Crescent, covering a total of 2,236.1 sq m, for $25.74 million. TEE Land plans to redevelop a block of residential apartments on the site.
Less than two months later, on Nov 7, TEE Land paid $72 million for the Casa Contendere condominium at 35 Gilstead Road, which sits on a site spanning 3,527.7 sq m. The price tag is equivalent to about $1,600 psf. TEE Land had never paid more than $50 million for a single development site previously. Phua says that if the redeveloped property on the site achieves prices of between $2,500 and $2,600 psf, TEE Land will have the ability to take on much larger projects. “If I can swing this around, I can buy a $100 million land,” he says.
Already, prices have been moving up in the wake of TEE Land’s purchases. Just three weeks after it bought the Gilstead Road property, Allgreen Properties bought the nearby Royalville at a price equivalent to $1,960 psf.
Phua says TEE Land will now focus on selling an existing project called Rezi 35 at Geylang. The next priority will be to launch the Seraya site at between $1,600 and $1,800 psf by July 2018, and then Gilstead by year-end. “I think TEE Land now has visibility for one year,” he says.
Shares in TEE International have barely budged over the past two years. Based on the Jan 10 close of 19.7 cents, the shares are trading just above the company’s net asset value of 18.9 cents a share, giving it a market value of $99.1 million. TEE Land has also traded sideways in the past year to close at 19.7 cents on Jan 10, or about half its book value of 35.2 cents a share, giving it a market value of $84.9 million.
