TTJ Holdings (SGX:K1Q) is one of my largest positions. On Friday, shareholders received a voluntary conditional cash offer from Mr Teo, TTJ's founder and executive chairman. Mr Teo's offer is for 23 cents per share, which values the company at roughly 80m SGD. As Mr Teo already owns approximately 85% of the business, he only needs about one-third acceptance to reach 90% ownership, after which he will be able to compulsorily acquire any remaining shares.
While the offer represents a 36.1% premium to the prior market price, it is deeply unfair to minority shareholders. As of January 31, TTJ had 36.79 cents per share of net tangible assets. This asset value consists of mostly cash and valuable real estate. Mr Teo's offer values these assets at 63 cents on the dollar. There is no justification for such a large discount.
So what is the real value of TTJ? There are the three main components: the steel business, TTJ's cash and securities, and the two properties from the waste management segment.
TTJ's steel business
TTJ's structural steel business is the company's most important asset. The steel business has been consistently profitable, earning an average of 10m pretax annually since listing. It has been EBITDA positive in every year since listing, while TTJ's competitors such as Yongnam have fared poorly. In the 12 months to January 31, the steel business earned approximately 10m in pretax earnings.
TTJ owns two properties in its steel segment: the office and factory at 57 Pioneer Road, Singapore, and the Keluli factory in Johor, Malaysia. The land area of the Pioneer Road property is 17,000 square metres, while the land area of the Johor property is approximately 86,000 square metres. It's important to note that both these properties were held when TTJ was listed back in 2010. They are held on the books at historical cost less depreciation, so their true value is likely well in excess of their carrying value.
The steel business would be worth an absolute minimum of 50-60 million SGD to a private buyer. This would represent 5-6x average pretax earnings. Using Singapore's 17% corporate tax rate, that would imply $8.3m in post-tax operating earnings. In other words, a 50-60m valuation implies a P/E of between 6 and 7.2. That seems very conservative considering the steel business's track record.
There are two other important points to consider when valuing the steel business. Firstly, TTJ's order book is $187m. This represents roughly 2.5 years of revenue at current rates. TTJ's highest ever order book was ~$195m SGD in 2019, so orders are at close to all-time highs. The second important issue is that Yongnam Steel, TTJ's largest competitor, is in financial difficulty. This should present opportunities for TTJ to gain market share.
So we are now at roughly 60m in valuation just for the steel business. So what else is there?
TTJ's cash and securities
At January 31, TTJ had net cash and securities of $30.9m SGD. Since then, TTJ has also received the proceeds from the disposal of the property at Johor Bahru, formerly used for the PPVC business. TTJ estimated it would receive proceeds of roughly 41.27RM, equivalent to 12.9m SGD. I've assumed 12m in post-tax proceeds. So all up — excluding any profit made since January 31 — TTJ should have around 43m SGD in net cash. This works out to 12.3 cents per share, more than 50% of Mr Teo's offer.
But wait, there's more — TTJ's waste management properties
A few years ago, TTJ attempted to diversify into the wood pellet business. This business never got off the ground and it is currently mothballed. However, this segment contains two valuable properties, which I assume will be sold. The auditor's report in the 2021 annual report notes that the property of TTJ Greenfuel Pte Ltd was carried at $14.3m SGD as of July 31, 2021, while the property, plant and equipment of TTJ Green Energy (Thailand) Co Ltd was carried at $8.2m SGD. So these properties should be worth at least $22.5m SGD as well. Note that these values are net of the impairments TTJ has made to the waste management segment's assets. There were no significant changes to the carrying value of the waste management assets in the recent half-year report.
TTJ's fair value — more like 37 cents per share
Putting that all together, we can get a sense of TTJ's true value.
Conservative sum of the parts
| Value | Notes |
| Steel business | 50-60 | 5-6x pretax earnings |
| Cash and securities | 42.00 | Does not include any cash generated since Jan 31 |
| Waste management properties | 22.50 | |
| Total value (SGD m) | 115-125 | |
| Per share | 33-36 cents | |
| Upside from current 23c offer | 43-56% |
Net tangible asset value
TTJ's steel business is likely worth at least book value. The remaining assets consists of property and cash. I believe TTJ's net tangible asset value is therefore a reasonable proxy for the company's intrinsic value.
| Value | Notes |
| NTA as of January 31 | 128.58 | Does not include gain on disposal of Johor property, nor any retained profits post Jan 31 |
| Per share | 36.79 cents | |
| Upside from current 23c offer | 60.00% |
Why TTJ shareholders should wait for a better offer
TTJ's shareholder register is made up of a large number of small shareholders such as myself. If roughly one-third of the float accepts the offer, Mr Teo will reach the 90% ownership threshold — meaning he will be able to compulsorily acquire any remaining shares. The best thing TTJ shareholders can do is to ignore Mr Teo's offer and push for a better price.
You don't need to just listen to me. In a report released today, Singapore-based brokers Lim & Tan said of the situation: "We think management is being opportunistic in an attempt to privatise the company on the cheap just at the inflection point of the construction sector upturn. Note that this offer is not final, and taking the above into consideration, we recommend investors hold out for a better offer."
What can TTJ holders do
If you own TTJ shares, I would recommend the following:
- Do not accept Mr Teo's current offer
- Do not sell your shares on market until the offer is improved
- Write to Mr Teo and TTJ about the problems with the current offer, and push for a better price.
- Reach out to other TTJ shareholders to express your concerns and urge them to reject the offer.
I have already spoken to a number of shareholders who share the same concerns as me, and who will be rejecting Mr Teo's offer. I'd be very interested to talk to any current TTJ shareholders, as it's important we stick together. You can get in touch with me via the
contact form on my blog.
Good luck to any fellow TTJ shareholders.
