jeffreywang_tritech1.14Dr Jeffrey Wang, MD of TriTech Group, owns 30.2% of TriTech International which holds a 40.11% stake in TriTech Group. NextInsight file photoTHE MARKET will, not too long from now, become abuzz with another IPO -- Terratech Group, a unique business among Singapore listed companies.

This follows the approval of shareholders of TriTech Group at an EGM on June 11 to spin off subsidiary Terratech on Catalist.

We give you a heads up on the upcoming IPO:

1. Valuation --- Terratech, which owns one of the largest marble mining businesses in Southeast Asia, is worth about S$234 million, according to a few Voyage Research reports.

We are not clear how this is derived but Terratech Group has not "carried out any significant sales or contributed to the pre-tax profits" of TriTech for FY2013 (ended March 2013), according to TriTech's EGM circular to shareholders.

Neither is there is any indication in recent financial statments of TriTech that Terratech has achieved significant profits.

In other words, Terratech cannot currently be valued on a price-earnings multiple. 

TriTech as a group has a market value of about S$181 million based on a recent stock price of 23.5 cents. Voyage Research says the "potential price of TriTech" is 38 cents a share, which is an enormous 62% potential upside.

Post-IPO, TriTech's stake in Terratech will be diluted from 100% to an as-yet unknown level, largely because new Terratech shares are to be issued to two convertible bond holders who had lent money to get the Terratech business going. 

However, TriTech will retain majority control of Terratech immediately post-IPO and continue to consolidate the financial results of Terratech.

Tritech_marble_VoyagepictureTritech's marble site in Gua Musang, Kelantan is one of the largest marble mining resources in Southeast Asia.
Photo: Voyage Research
2. Marble business -- Terratech's value lies in the marble quarries that it owns in Kelantan, Malaysia. 

As yet, there is no valuation published of the marble assets that we know of in the public domain.

When released, the Terratech IPO offer document will contain a qualified person’s report on the amount of proved and probable reserves in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves promulgated by the JORC of the Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Minerals Council of Australia.


3. Revenue -- TriTech announced in Oct 2013 that it had secured orders worth S$18 million for marble slabs to be delivered in 2H2014 to certain property development projects in China.

Last month (May), TriTech said two of the four hills at its marble site were in commercial production and it expects to commence commercial production at the remaining two hills soon. 


4. Pre-IPO investors -- In Nov 2012, S$15 million were raised to fund various costs and expenses incurred, or to be incurred, in connection with the proposed listing and for capital expenditure and working capital of the marble business. 

To that end, Luminor Pacific Fund 1 and Mr Kwan Chee Seng, an executive director of Luminor Capital, subscribed to convertible bonds. They will be issued with Terratech shares priced at 50% of the IPO price. 

5. Distinct business  -- The marble business is a different and distinct business segment from the other three existing business segments of TriTech, namely specialist engineering services, ground and structural engineering services and water-related business. 

TriTech, by the way, has been reporting a string of engineering-related contracts worth a total of S$59.4 million so far this year. These relate to its core business -- in the area of geotechnical, ground and structural engineering services and it has more than 50% market share by its own estimate.

It's a strong reflection of its high expertise that its key customer is the Land Transport Authority.

As at 30 May 2014, the order book for the engineering business was $115.1 million. 

Recent story: TRITECH: Engineering company's new marble & water biz set for take-off

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