Monday, December 16, 2013

Tat Hong : Not so TAT-tered Barbie or a beautiful rag doll? (CIMB)

Tat Hong Holdings
Current S$0.89
Target S$0.93
Not so TAT-tered Barbie or a beautiful rag doll?

While land-optimisation programmes have been put in place, we believe that investors would rather see a convincing recovery in its Australian operations. We believe any spike in profitability in 2014 will stem more from non-operational land divestments.

Uncertainties in Australia should eclipse other growth engines and hinder better valuations as in the past. Our target price stays at S$0.93 (7x CY15 P/E, 1 s.d. below its 5-year average forward P/E). Under our revised rating structure, our rating changes from Neutral to Hold.

Crane rental must perform
Crane rental, which contributed to 38% of its revenue and 54% to its gross profit in 1HFY14, is TAT‟s bellwether. Operations in Singapore should continue to benefit from work on Jurong Island, MRT DTL 2 & 3 and overseas projects (Papua New Guinea). TAT‟s ongoing participation in long-term infrastructure projects in Hong Kong and projects in Thailand should also contribute. In addition, crane-rental revenue from Australia, which plunged in 2013, may improve next year, though not in any significant way. The outlook for this division is not as dim as for its other segments since business in its key South-east Asian and Hong Kong markets remains underpinned by contracts already signed.

Cash/cost management
Management is making good progress in controlling costs for all its operations. A standout decision is its land-optimisation programme which should yield cost-savings in the next 18 months. Real-estate disposal gains from Iskandar (around S$13m) and potential sale-and-leaseback arrangements for its Australian land (savings of A$2.3m) could boost its already-strong cash flows.

Challenges in Australia
On the other hand, Australian operations are not out of the woods, given a still-challenging operating environment. We believe investors are waiting for a convincing recovery in its Australian operations before turning more positive on the stock.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 29/11/13

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