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TEHO International: Growth Through Diversification Into Real Estate
Corporate Digest | 22 August 2014
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By: Choo Hao Xiang
Articles (151) Profile

Five years ago when TEHO International went public, the firm was solely dealing in rigging and mooring equipment. Since then, TEHO has been on an acquisition spree; adding three new arms within a short span of three years.

Not Just A Rigging Firm
Setting its sight on becoming a multi-faceted solutions provider for the marine, offshore oil and gas industries, TEHO bought over a heating equipment supplier in 2012 and a water treatment equipment unit in 2013. The purchases gave TEHO the product offering boost it needed to enhance its value proposition to its clients.

Group Structure

Source: Company Website

The strategy of expanding into complementary business segments worked out well for the firm. Firstly, its income stream was diversified. Secondly, the consolidation led to strong revenue growth in the years of acquisition. In fact, the firm went on to a record-breaking streak; it chalked up a record $43 million in revenue for FY13 and then another high of $55.3 million in FY14.

Widened Network
Besides product range extension, TEHO also augmented its network. In the recent two years, the firm set up offices in Shanghai, China and Rotterdam, the Netherlands to service its clients at different parts of the world better.

Together with logistics points in Houston, the US and Sharjah, United Arab Emirates which TEHO engages services of local logistics providers, the firm is able to reach its customers at the world’s most important ports.

The company holds a comprehensive range of inventory averaging about $20 million at any point of time. This would allow vessels berthing in the ports TEHO’s network covers to secure the necessary supplies within a short time before departing.

In light of minimal inventory write-down all these years, TEHO can be said to be managing its inventory level quite well.

Global Presence

Source: Company Annual Report

Certified Supplier Of Choice
With close to 30 years under its belt, TEHO has amassed a clientele of more than 300 customers who operate in the marine, offshore oil and gas as well as construction industries, for its rigging, mooring, lifting and safety business.

With such a sizable base, TEHO is not too concerned about customer concentration risk; all but one contribute to less than 5 percent of TEHO’s full-year revenue. Based on the firm’s latest financial results, it derived about 9 percent of its FY14 revenue from its biggest client, Singapore-based port operator PSA Group.

From a product perspective, while the firm has its in-house brands, it is also in distributorships with industry specialists such as SpanSet and Wirelock. Although it is not an industry practice to enter into long-term supply deals, “we enjoy certain privileges on the back of our rooted business relationships. Direct enquiries or orders on our suppliers’ end are often re-routed our way,” Lim See Hoe, chairman and chief executive of TEHO, said when asked about supply risks.

For TEHO’s electrical and mechanical engineering system unit, it plays the role of a distributor of reputable brands such as Chromalox and Halton. The unit provides heating, fire prevention and accommodation solutions to offshore oil and gas players in Singapore such as Keppel Corporation and Sembcorp Marine.

TEHO’s third business involves water treatment solutions for use on offshore oil and gas support vessels.

New Pillar Of Growth
Given the maturity of the markets TEHO is engaged in particularly its rigging business and the depressed state of the shipping sector, the firm recently made a strategic move to venture into property investment and development.

It took the firm five months to identify what it deemed as “an opportunistic investment”. In May, the company acquired real estate developer TIEC Holdings, a related company of ECG Group of Companies then, for $12.3 million.

Elaborating on that, Lim said “we place a high emphasis on business continuity. With that being a big factor in the equation, Eric Cheng came across as the right partner for us”. Touted as an investment guru in the real estate industry, Cheng is at the helm of ECG.

As TEHO enters into a totally new field to reduce dependency on its equipment business, there might be worries that the company is taking a risk by overextending. As such, the arrangement is such that Cheng, armed with his deep knowledge of the real estate industry, will continue to spearhead developments at the firm’s new property arms, TIEC and TEHO Development.

Under the holdings of TIEC are residential developments – Elite Residence at 52 Elite Terrace Singapore, Urban Heritage at 238-242 Balestier Road, 7 Berwick Drive and 61 Conway Grove. Based on a valuation done on 7 January, the total value of the unsold units of launched projects, was approximately $32.7 million.

Urban Heritage

Shedding some light on the level of interest on the developments, according to ECG website, one of two semi-detached units at 7 Berwick Drive has been taken up while Urban Heritage is 90 percent sold. Its Elite Residence project has not been launched. The firm is expected to obtain the temporary occupation permit for Elite Residence on 31 December 2016.

Taking reference from its latest financial performance, TEHO derived one full month post acquisition of revenue contribution and earnings before interest, tax, depreciation and amortisation amounting to $5.1 million and $234,000 respectively from TIEC.

Future Plans
Leveraging on Cheng’s marketing experience overseas, TEHO Development intends to put its near-term focus in the UK, Australia, Asia specifically in Singapore, Malaysia, Thailand and Japan.

Another area of interest was Cambodia. The firm inked a non-binding memorandum of understanding with independent third parties for the proposed establishment of a company in Cambodia to engage in the principal business of real estate development and investment in that country.

For TEHO’s existing portfolio that caters to the marine and offshore oil and gas industries, the firm will focus on its business in Europe. “Our office in Rotterdam has been faring well,” Lim commented. The unit contributed to 27 percent of the $17.4 million revenue growth in FY14.

Currently, the firm’s order book excluding that of its property arm stands at about $20 million. These contracts are expected to keep TEHO busy for a duration of one year. Giving further insights on the backlog, Lim said that majority of its orders comes from repeat clients.

Valuations
Based on TEHO’s last traded price of $0.188 on 15 August, it translates to an eye-catching 40.4 percent discount to its book value. Apart from trading at less than book value, it is trading at a historical PE of 7.6 times. This compares favourably with its peers KTL Global which is trading at 63.7 times and Gaylin Holdings at 21 times.

Another plus point is its dividend yield. Based on the amount of $0.008 per share declared for FY14, this brings TEHO’s dividend yield to a respectable 4.3 percent.

Considering the above, and should the newly added growth driver gain traction, TEHO with its twin engines of growth might just warrant a second look.

Haoxiang manages and oversees the portfolio of stocks in the consumer goods and hospitality sectors at Shares Investment.

Please click here for more information about this author.

Teho Int'l  -- -- --   
Business: Co is a supplier of rigging and mooring eqmt as well as related svcs to customers mainly in the marine & offshore oil & gas industries. [FY18 Turnover] Marine, offshore oil & gas (73.4%), property development (26.6%).

Insight: Feb-19, 1H19 revenue fell marginally by 0.4% to $2... Read More
AMOS Group  -- -- --   
Business: Multi-disciplinary specialist providers of rigging & lifting solutions. [FY18 Turnover] Rigging & lifting (77.1%), ship chandling (22.9%).

Insight: Aug-18, 1Q19 revenue slid 17.5% mainly due to decr... Read More
KTL Global  -- -- --   
Business: Co is a supplier of rigging equipment and related services.

Insight: Feb-19, FY18, revenue for the 18 months ended 31 D... Read More


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