Share Price S$0.88
Key takeaways from investor’s meeting
• Tat Hong provides crane rental, heavy lift, heavy haulage and equipment sales services. It is the largest crane company in the Asia-Pacific region, supplying cranes ranging from under 50 tonnes to 1,600 tonnes. Tat Hong has also aggressively expanded its tower crane rental business in China and is the second-largest tower crane company in the country.
• Tat Hong reported two sequential declines in quarterly net profits in FY14 (1Q14: - 51%, 2Q14: -53%) as weaker economic outlook in Indonesia and Australia eroded revenue from the crane rental and distribution businesses. These two segments contributed 78.4% of the company’s top-line.
• The company faces cost pressures as wages continue to rise due to the tight labour market and transportation expenses increase for the relocation of cranes under the tower crane rental division. The company is also affected by unrealised foreign exchange losses arising from inter-company loans and payables related to its Indonesian operations due to a steep devaluation of the rupiah. Net profit of S$16.4m in 1HFY14 made up only 23.3% of FY13 earnings.
• Crane rental’s revenue fell 14% yoy to S$70.3m in 2Q14 due to weaker specialized transport income from Australia’s subdued mining and infrastructure activities. Gross margin from the segment retreated to 52.0% from 56.6% in 1QFY14 on higher labour costs despite an improvement of utilisation rate in the quarter. Revenue from the distribution segment (40.5% of 2QFY14 revenue) also fell 17% yoy to S$75.0m due to an economic slowdown in Australia and reduced excavator sales in Indonesia.
• While Tat Hong is now trading at a 15.7% discount to its 3-year average P/B of 0.98x, any increase in earnings will largely be dependent on the Australian’s economic growth, which has remained muted after reporting a seasonally adjusted 0.6% in 3Q13. Its Reserve Bank also revised down the country’s growth forecasts for 2014 and 2015 after it said mining investment was set to fall off at a faster-thanexpected pace next year.
• Tat Hong is trading at forward PE of 11.1x and P/B of 0.83x. Bloomberg estimates its 12-month target price at S$1.10. Tat Hong has underperformed the FSSTI, with share price declining 35.1% ytd against the index’s -3.6%, as several brokers downgraded their earnings forecasts and target prices following two quarters of weak earnings.
Publish date: 17/12/13