STI : 3,039.90
FULLY VALUED S$0.785
(Downgrade from Hold)
Price Target : 12-month S$ 0.64 (Prev S$ 1.01)
Poor earnings visibility
• 3Q FY14 earnings missed estimate on weak Australian and Indonesian operations
• Slashed FY14F/FY15F earnings by 28%/42%
• Downgrade to Fully Valued; slashed earnings, cut TP to S$0.64
Earnings disappoint. 3Q FY14 profit fell 32% y-o-y to S$12.1m (-32% y-o-y). But excluding S$12.9m onetime gain from land sale, PBT would have been only S$1.8m (-92% y-o-y). 9M FY14 net profit is only 58% of our full year forecast. Losses in Indonesia dragged earnings while Australian operation remained weak on low public spending and slow progress in oil & gas projects.
Poor earnings visibility. We expect recovery in Australia to be slow, and Tat Hong’s earnings visibility remains poor. We are looking for signs of a pick-up in activity in Australia to trigger a turnaround at Tat Hong. For now, there is risk of weaker-than-expected earnings growth with slow recovery in Australia.
Slashed FY14F/FY15F earnings. We expect activity to remain muted in Australia in the coming quarters. Hence, we cut revenue growth and margin assumptions
further to account for poorer earnings visibility, keener competition and higher opex.
Downgrade to Fully Valued, TP lowered to S$0.64. Our TP is pegged to 12x FY15F PE and implies 19% downside from current levels. It also implies 0.6x P/BV,at the lower end of Tat Hong’s P/BV valuation range. We may upgrade the stock when fundamentals turn positive or valuation has priced in the negatives.
Publish date: 14/02/14