Monday 12 November 2012

Tat Hong Holdings

OCBC on 12 Nov 2012

Tat Hong Holdings (Tat Hong) reported a good set of 2Q13 results that were in line with ours and the street’s expectations. 2Q revenue and PATMI increased by 18% and 37% YoY to S$216m and S$17.3m respectively, driven mainly by strong performances from its Crane Rental and Tower Crane segments. On a half year basis, Tat Hong’s 1H12 PATMI surged by 88% to S$34.0m, making a strong comeback after three years of weak profitability (FY10-12). Looking ahead, we expect the group to utilize its placement proceeds to purchase more crane assets for deployment to the various projects in the region. This should deepen its presence and provide the next leg of growth for FY13F-14F. Given its strong growth momentum, we increased our valuation peg to 14x (previously 12x) and our fair value to S$1.70 (previously S$1.42). Maintain BUY.

2Q results within expectations
Tat Hong Holdings (Tat Hong) reported a good set of 2Q13 results that were in line with ours and the street’s expectations. 2Q revenue and PATMI increased by 18% and 37% YoY to S$216m and S$17.3m respectively, driven mainly by strong performances from its Crane Rental and Tower Crane segments. On a half year basis, Tat Hong’s 1H12 PATMI surged by 88% to S$34.0m, making a strong comeback after three years of weak profitability (FY10-12). The group also announced a 1.5 S cts interim dividend (1H12: 1 S cts).

Segmental review
The Crane Rental division showed a 52% YoY increase in revenue to S$81.4m, supported by ongoing projects across the region. Utilization rate for the crawler/mobile cranes climbed to 72.5% in 2Q13 (2Q12: 67.9%). For its Tower Crane business, revenue increased by 27% YoY to S$18.8m, mainly due to an expanded fleet size (2Q13: 784 units; 2Q12: 698 units) and higher utilization rate (2Q13: 79.9%; 2Q12: 70.8%). Revenue from Distribution segment was flat at S$89.8m (+1% YoY) with the lack of sales to Europe offsetting improvements in the Indonesia, Singapore and Australia markets. Similarly, General Equipment Rental also showed sluggish performance with revenue unchanged at S$26.0m, due to mixed performances in the various states of Australia. 

Deployment of placement proceeds
Following its S$82m placement on 26 Sep 2012, the group has utilized S$9m for inventory purchase, and another S$55m to repay short-term borrowings pending final deployment. Given the tight utilization rates of its cranes, we expect Tat Hong to purchase more crane assets in 2H13F for deployment to the various projects in the region. This should deepen its market presence and provide the next leg of growth for FY13F-14F. Given the strong growth momentum, we increased our valuation peg to 14x (previously 12x, still on FY13F EPS) and our fair value to S$1.70 (previously S$1.42). Maintain BUY.

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