Overseas contracts bring good news to TEE

Analyst says TEE’s current outstanding order book is already tilted more towards overseas projects versus local ones.

OCBC Investment Research noted:

TEE announced that it has recently added five new contracts worth a total of approximately S$12.7m and this brings total outstanding order book to S$292.3m. The largest contract of the lot, worth about S$10.1m, relates to addition and alteration work on existing commercial building Bishan Junction 8, awarded by CapitaLand Retail Project Management. Also, out of the newly awarded contracts, three are overseas projects in Thailand and Malaysia.

The overseas contracts point to positive development for TEE. The group has been executing its overseas expansion well. Its track record improves further as more overseas projects are won, adding weight to its position as a regional M&E player. As it stands, TEE’s current outstanding order book is already tilted more towards overseas projects (>50%) versus local projects. Management has indicated that overseas projects typically offer better margins and given successful delivery of overseas projects, the group should see better margins over the next two to three years.

While TEE’s 1HFY12 results disappointed slightly, the YoY decline was largely down to its transition between projects and slower execution pace on newer projects. However, its order book remains fairly healthy and the latest wins show that TEE is capable of replenishing it with both local and overseas projects. Management expects to gather pace on projects in 2HFY12 and FY13, and we should expect better top- and bottom-line performance from the group.

With more overseas wins, TEE continues to demonstrate that it is now more than a dominant local M&E player. It is also capable of competing regionally for projects, and this is a great boost for future order book prospects. We like its growth prospects given its improving overseas track record, and therefore we upgrade its P/E peg to 6.0x (previously 5.0x) on its M&E business and this yields a higher fair value estimate of S$0.36, and we maintain BUY.