BUY S$1.18; TAT SP
Australia presents earnings risks;
Price Target : 12-month S$ 1.43 (Prev S$ 1.80)
•Economic situation in Australia presents downside risk to our earnings
•Poor mining, infrastructure spending outlook and weak AUD hamper earnings growth
•Cut FY14F/FY15F earnings by 20%/21%
•Maintain BUY with lower TP S$1.43
Potential earnings downside in 1Q14F. We see two potential downside risks to earnings for the coming quarter in weaker AUD and slower mining and infrastructure spending in Australia. 2H13 revenues from Australia fell 12% y-o-y, affected by a slowdown in mining and infrastructure spending. These could result in slower equipment sales/rental and translation losses for 1Q14F.
Expect slower equipment sales, general equipment and crane rental. The outlook for mining in Australia will likely remain weak with infrastructure spending expected to slow down over the next two quarters. We now expect less aggressive growth in equipment sales, and general equipment and crane rental business. The AUD has also depreciated 9% against the SGD, which could result in translation losses.
Cut FY14F/FY15F earnings by 20%21%. Premised on the above, Australia will potentially drag earnings growth. For FY14F, we lowered crawler crane utilisation rate from 77% to 73% and rental rates by 7% to account for slower rentals. We also reduced equipment sales revenue growth from 3% to 1% and general equipment rental income growth from 9% to -13%. In addition, we factored in S$5.5m impact from a weaker AUD against the SGD in 1QFY14F.
Maintain BUY with lower TP of S$1.43. TAT is currently trading at -0.5SD of its mean valuation, at 9.8x PE. Despite near-term headwinds, the stock is attractive as valuation is below average. Our target 12x FY14F PE multiple values the stock at S$1.43.
Publish date: 10/07/13