Tat Hong Holdings

OCBC on 11 Jul 2012

According to media reports, the Hong Kong government is considering a proposal to ramp up the number of new flats to 50,000 a year (over a two to three year period). This far exceeds the 18,000 flats built in the last fiscal year ending March. If the plan passes, there may be a surge in the territory’s crane demand; and Tat Hong Holdings (Tat Hong) – with one of the largest crane fleet in Asia – would be one of the prime beneficiaries. Even without the proposal to increase new flats, ASEAN countries are already experiencing strong and sustained infrastructure activities over the near and medium term horizons. Tat Hong’s business in Australia and China should also improve, driven by post-disaster reconstruction activities and successful restructuring of business operations respectively. Maintain BUY rating with an unchanged S$1.21 fair value estimate.

Hong Kong to ramp up construction of new flats
According to media reports, the Hong Kong government – led by new chief executive Leong Chun Ying – is considering a proposal to ramp up the number of new flats to 50,000 a year (over a two to three year period). This far exceeds the 18,000 flats built in the last fiscal year ending March and the 35,000 flats target set by the previous Donald Tsang government for the coming years. Although this plan would benefit many Hong Kong residents looking for affordable housing, some developers fear that such a steep ramp up would lead to plummeting prices. If the plan passes, there may be a surge in the territory’s crane demand; and Tat Hong Holdings – with one of the largest crane fleet in Asia – would be one of the prime beneficiaries.

Strong infrastructure activities in ASEAN
Even without the proposal to ramp-up new flats, Hong Kong is already experiencing a strong pick-up in construction activity driven by a number of large infrastructure projects. In the 2012/2013 Budget, the Hong Kong government noted that annual actual expenditure on capital works has tripled to HKD62.3b in 2012-13 (2007-08: HKD20.5b) and is expected increase further to over HKD70b per year over the next few years. Outside of Hong Kong, we are also expecting a high and sustained level of construction activities in Singapore (Downtown Line, Ophir-Rochor) and Malaysia (Iskandar Malaysia).

Turnaround in China and Australia
Tat Hong’s Australia operations are expected to recover strongly driven by post-disaster reconstruction activities. In China, the group restructured its operations and is now better positioned for growth. We are optimistic over Tat Hong’s near and medium term outlook. Maintain BUY with an unchanged S$1.21 fair value estimate.