STI : 3,166.74
Price Target : 12-month S$ 1.01 (Prev S$1.00)
• 2Q14 results were in line; Australian operations, crane utilisation and margins remained weak
• Australia operations may take time to recover
• Interim DPS of 1 Sct declared
• Maintain HOLD with TP of S$1.01
2Q14 results in line. 2Q14 earnings were in line with our estimates. Revenue declined 14% to S$185m while earnings dropped 53% to S$8.2m, largely due to weak Australian operations (-27% y-o-y), fleet utilisation (68%), and margins. Crane rental revenue decreased 14% and contributing to the decrease were continued weakness in Australia’s mining and infrastructure activities and the completion of one key rental contract in Malaysia.
Weak crane rental demand led to lower margins. Gross margins remained below FY13’s average of 37.6% at 36.8%, due to lower crane rental gross margins of 52% (vs FY13’s 60%) on weak crane rental demand. 1H14 earnings now account for 40% of our full year estimate. Management declared interim DPS of 1 Sct, in line with our expectations.
Land restructuring. While we await recovery from the Australian operations, TAT is restructuring its land use in Singapore and Malaysia. TAT has announced that it will sell its land in Iskandar for RM41m to its 25% owned JV company. As a result, TAT will recognise a non-core income gain of S$14m in 3Q14. TAT will also be consolidating some of its Singapore operations to Tuas in the future which could result in land sales in Singapore going forward.
Recovery in Australia could take time. We believe recovery of TAT’s Australian operations will take time. While some projects are progressing, general infrastructure spending and demand for natural resources need to pick up before capital spending and equipment rental can recover. We therefore factor a mild recovery in our earnings estimates and look forward to signs of recovery in Australia.
Maintain HOLD, TP largely unchanged at S$1.01. As we factor in 2Q14 results, our TP is largely unchanged at S$1.01 based on12x blended FY14F/FY15F EPS. Maintain HOLD.
Publish date: 14/11/13