Thursday, November 14, 2013

Tat Hong : Not so TAT-tered this time (CIMB)

Tat Hong Holdings -
Current S$0.92
Target S$0.93
Not so TAT-tered this time

A sequential improvement provides relief. While land optimisation programmes have been put in place, we believe that investors would rather see a convincing recovery in its Australian operations.

2QFY3/14 core net profit was in line at 30% of our full-year forecast. 1HFY3/14 core net profit formed 48% of our FY13 estimate. We keep our estimates unchanged, but lower our target price as we roll it over to 7x CY15 P/E (1 s.d. below its 5-year average forward P/E, previously 9x CY14 P/E). Uncertainties in Australia will eclipse other growth engines and hinder better valuation multiples as seen in the past. Maintain Neutral.

A sequential improvement
The 14% yoy decline in revenue in 2Q14 was not a surprise. All of its divisions except for the tower crane rental segment recorded lower revenue. Core profit plunged 41% yoy (though it improved from the atrocious 1Q14), primarily due to margin pressure. Overall gross margin was stable at 36.8%, with  margin slippage only in the crane rental division. The 2Q14 results pretty much mirrored that of 1Q14, and the differential was due to a S$5.2m unrealised forex loss. An interim dividend of 1 Sct/share was proposed.

Cash/cost management
Beyond the results, we expect management to put stringent cost-cutting measures in place for its various operations. We also think that land optimisation will yield some opex savings in the next 18 months. The real estate disposal gain from Iskandar (c.S$13m), potential sales and leasebacks on its Australian land (saving A$2.3m) could boost

Maintain Neutral
That said, our base assumption for the FY14 blended utilisation rate stays at 67% for crawler cranes as the competition creeps in, while the rental rates are unlikely to grow. Near-term challenges in Australia suggest that its operation there is not out of the woods yet. Its operating environment is hindering the spectacular growth that has lifted the group's performance in the past. Maintain Neutral.

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

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