TEE heading in the right direction: OCBC

Venturing overseas to replenish order book and search for higher yielding projects is apparently a smart move.

OCBC Investment Research noted:

TEE reported a weaker set of 1HFY12 results as revenue reached only S$78.8m, representing a fall of 34% YoY. The decline was due to lower revenue recognition, as the group approached the tail end of key projects such as Asia Square.

Sizeable construction projects often result in lumpy revenue recognition and it is not uncommon for companies in this sector to suffer sales decline when they transition to new projects. The lower revenue also resulted in 1HFY12 net profit of S$5.9m, or down 19.4% YoY.

Despite TEE’s decline in sales and profit in 1HFY12, net margin improved 1.3 ppt to 7.4%. This can partly be attributed to an increasing execution of overseas projects, which typically offer higher margins. Of its current engineering order book of S$278m, more than 90% are from overseas projects.

Management guided that margins are likely to improve as it garners more overseas projects. Project execution of several big overseas projects, including a housing project in Brunei and several engineering projects in Malaysia, will gather pace during 2H12 and FY13. Thus, profit margins are expected to improve going forward.

We believe the group’s move to venture overseas to replenish its order book and search for higher yielding projects is heading in the right direction. As the group navigates through this transitional phase, we believe FY13 will give a fairer representation of its performance.