TriTech spin-off listing on Catalist

FY14 ended March, ended badly with S$8.7 million loss. Worse than the previous year's S$3.6m. Does the stock price of 23 cents reflect this already?

Is the worst over? Is TriTech share price ready to run on confirmation of the go-ahead for the IPO of the marble business?

Tritech prepares for harvest as water, limestone businesses ready for take-off

BY FRANKIE HO , The Edge Singapore Issue 623 (Apr 28- May 4)

Demand for Tritech Group's engineering services is rising, but costs are growing at a faster clip, eating into its profit margins. On the flip side, after several years of investment and incubation, two new business segments are poised to take off and start making meaningful contributions to its top and bottom lines.

Call it a case of the glass being half empty - or half full. Either way, Tritech has found itself in a situation where challenges in its core business are starting to sting, while prospects in water treatment and limestone sales are keeping its hopes up.

Founded in 2000 by Jeffrey Wang, a China-born Singapore citizen, Tritech provides geotechnical, ground and structural engineering services to a host of industries, including infrastructure and oil and gas. Despite strong competition in Singapore, its key market, the company has not been short of projects. This year alone, it has clinched six government contracts for land transport and utilities work, lifting its total order book to $116 million.

While the orders are coming in, however, Tritech has been earning less, as wages for its engineers have been bumped up in the wake of tighter manpower laws to ensure companies hire suitably qualified workers rather than low-cost foreign labour. For the nine months to December 2013, Tritech's gross margin fell to 17% from 28% a year earlier. Before the regulatory changes, its margins five years ago were as high as 40%.

"This has always been challenging," Dr. Wang, Tritech's managing director, tells The Edge Singapore. “We can't go for labour-intensive projects. So, while the company's engineering business has managed to stay in the black all these years, he has been mindful of the need to create additional streams of income for Tritech.

That led to the group's turning to water treatment and the limestone trade in recent years.

Harvest time
The efforts, by Dr. Wang's account, are starting to pay off. Last year marked the end of the bulk of Tritech's investment in the two new businesses and the beginning of what he believes will be a period of steady growth for the group. He says, Tritech has completed its investment stage. We are now entering into the harvesting stage."

Between the two, Tritech's Asia-focused water business is seen as the bigger catalyst. One of the group's most significant investments in the water business is an industrial site in Qingdao province's Jiaonan city which it acquired in 2009. It paid RMB14 million ($2.8 million) for the land and spent the last few years building a plant there for manufacturing membranes for use in water treatment. The facility was completed last July and has started production.

Shortly after the completion of the Qingdao plant, Tritech bought a wastewater treatment firm in Anhui province's Hefei city. With more than 100 projects under its belt, that company gave Tritech a platform to widen its reach in China.

"Margins for our water business should be higher than those for our engineering business," says Dr. Wang, who has a PhD from the National University of Singapore's Department of Civil Engineering and is one of seven PhD holders in Tritech's senior management team.

Declining to give details, he expects income from the water business to be "quite promising" this coming year. In its FY2013 ended March last year, Tritech generated $3.5 million of revenue from its water operation, up from $1.9 million in the previous year. Overall revenue in FY2013 came in at $51 million, mostly from the engineering business.

Latest water deal
Contributions from the water business might even be higher if Tritech proceeds with a proposal to invest in another company in China.

It inked a non-binding agreement on April 10 to potentially take a 49% stake in the sole supplier of potable water in Shandong province's Jining city, which has a population of 8.4 million.

The target, Jining Zhongshan Public Utility Water Co, has an exclusive licence from the Jining government to treat and supply water for 30 years in lining, an industrial city. Jining Zhongshan has a workforce of more than 700 and owns five water plants. According to Wang, the target company's latest full-year after-tax earnings were RMB27 million. In comparison, Tritech booked a net loss of $3.6 million in FY2013.

"Pollution in Jining is quite serious. There are a lot of industries there and the city is situated in a big coal mining area," he says. If the acquisition proceeds, Tritech will end up as one of the major players in China for water treatment, he claims.
As part of efforts to scale up its water business, Tritech offered to acquire Catalist-listed Moya Holdings Asia last year. Moya Holdings develops and operates water treatment facilities in Indonesia. The deal was dropped in January this year, as certain conditions were not met.

Marble resources
The limestone business, Tritech's other new business venture, is also looking up. The company bought a limestone mining operation in the northern Malaysian state of Kelantan in 2010 and has been spending the last few years getting it ready for production. The marble slabs are targeted for sale in China and other markets in Asia as well as the Middle East. Some $18 million worth of marble slabs were sold to four property developers in China last October.

With the limestone setup now fully operational, one of Tritech's near-term priorities is to get it publicly listed. The initial plan, made known in 2012, was to float the business in Hong Kong, but the group eventually picked Singapore instead. It received in-principle approval from the Singapore Exchange last August for the proposed spinoff.

According to Dr. Wang, one of the reasons the exercise is taking quite some time to complete is that the preparatory work covers three markets - Malaysia, where the limestone production work is carried out; China, where pan of the output is sold; and Singapore, where the marble slabs are marketed to countries outside China.

ln any case, Tritech appears to have more than enough on its plate at the moment, given the slew of engineering contracts that have come its way over the past months and the growth potential of its two new businesses now that both are equipped for take-off.

"Our water and marble businesses place Tritech in a better position than before, especially at the present time when engineering businesses in Singapore are facing challenging operating conditions," says Dr. Wang.

www.theedgesingapore.com/comp...html?task=view

My impression is that TriTech has a very high level of engineering expertise and is a well-trusted partner of LTA, PUB, etc. The projects that TriTech has won are a positive cash cow for the company and supported the investment phases of the limestone & water businesses.

My bugbear is that the TriTech website is lagging far behind. News is not updated on the home page. The current news is Sept 2013 on the homepage! It's 9 months behind! www.tritech.com.sg/

TriTech now +2.5 cents = 26 cents

Voyage Research target is 38 cents.

TriTech now +2.5 cents = 26 cents

Voyage Research target is 38 cents.

The warrants are hot !
They expire on 29 MAR 2019 -- long shelf life and thus deserve a premium.

You can see the premium at work as well as the high gearing of 3 X of the warrants

---> The warrants ended yesterday at 8.8 cents while the exercise price is 20 cents. Altogether 28.8 cents if you exercise them.

Compare this to the mother share of 26.5 cents.