TEE Land Ltd - NRA Capital Research 2017-01-19: Making Headway Towards Value Discovery

TEE LAND LIMITED SGX: S9B

TEE Land Ltd - Making Headway Towards Value Discovery

TEE Land reported PATMI of S$0.69m for the 2Q FY17 quarter ended 30 November 2016. Earnings were comparable to that of 1Q FY17 when the company made S$0.6m and would have been higher if not for S$0.68m of share of loss of associates compared to a positive profit share of S$0.8m in 1Q FY17.
The loss at associated companies was mainly due to the sale of several units at the Boutiq project below cost and losses incurred by Chewathai in Thailand.

We are somewhat disappointed by the lower than expected earnings for 2Q FY17. However, revenue grew from S$13.8m in 1Q FY17 to S$24.0m in 2Q FY17, mainly due to faster project progress at Third Avenue. We expect the completion of projects to lead to better performance from Chewathai in 4Q FY17.
In general, the results reflect a healthy shift towards higher profit contribution from majority owned projects. Costs were largely similar across 1Q and 2Q FY17 except for savings of S$0.6m to S$0.7m from the cessation of depreciation of Australian assets.

During 2Q FY17, TEE Land reclassified its Australian hotels to assets held for sale, giving rise to two implications –
1. efforts to sell Quality Hotel CKS Sydney Airport are making headway and
2. the company has also decided to sell Larmont hotel as well.
Work to convert the newly acquired units to suites has been completed.

We have previously highlighted unsold units as a key risk. Since our last update, TEE Land has sold one unit at 183 Longhuas and three units at Peak I. This leaves 38 units with an estimated value of S$69.35m at 183 Longhause, Peak I and Hilbre 28 to be sold.
Among associated projects, Floraville and the residential units at Floraview are more than 94% sold, having moved some 30 odd units over the last three months.

We generally concur with the moves to improve balance sheet liquidity. These moves will be the future catalysts to bring about discovery towards our valuation. In this update, we revised FY17 PATMI from S$9.4m to S$6.2m. This estimate excludes any potential gains from the sale of the Australian hotels.
Our valuation has been revised lower from S$0.335 to S$0.290 as we have revised selling prices and fair values lower for the unsold portion of development projects and for the hotels in Australia. This is to reflect downside risks given current market conditions. However, we reiterate that our investment case for TEE Land remains intact with an unchanged return / risk classification, especially with the more conservative projections.
As of 30 November 2016, TEE Land has a net asset value per share of S$0.355.

Liu Jinshu NRA Capital Research | http://www.nracapital.com/ 2017-01-19

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