Tat Hong Holdings

DBS Vickers Research, July 10

WE see two potential downside risks to earnings for the coming quarter in weaker Australian dollar (AUD) and slower mining and infrastructure spending in Australia. H2 2013 revenues from Australia fell 12 per cent y-o-y, affected by a slowdown in mining and infrastructure spending. These could result in slower equipment sales/rental and translation losses for Q1 2014.

We expect slower equipment sales, general equipment and crane rental. The outlook for mining in Australia will likely remain weak with infrastructure spending expected to slow down over the next two quarters. We now expect less aggressive growth in equipment sales, and general equipment and crane rental business. The AUD has also depreciated 9 per cent against the Sing dollar, which could result in translation losses.

We have cut our earnings forecasts for FY2014 and FY2015 by 20-21 per cent. Premised on the above, Australia will potentially drag earnings growth.

We maintain "buy" with a lower target price of $1.43. Tat Hong is currently trading at minus 0.5 standard deviation of its mean valuation, at 9.8 times PE. Despite near-term headwinds, the stock is attractive as valuation is below average. Our target 12 times FY2014 forecast PE multiple values the stock at $1.43.

BUY