Tat Hong’s 3QFY14 revenue fell 19% YoY to S$167.4m while PATMI declined by 32% to S$12.1m. Revenue declined YoY across all divisions other than Tower Crane Rental, which we view as a trend continued from previous quarters’ results. Similar to the preceding quarter, the decline in PATMI is primarily due to lower profit contribution from Australia and Indonesia. While healthy pipelines of projects are expected for SEA and Hong Kong, we are concerned with the lack of turnaround in Australia. Due to a change in analyst and assumptions, we lower our fair value estimate to S$0.72 from S$0.90 and maintain our HOLD call.
Weak 3QFY14 results
Both Tat Hong’s 3QFY14 revenue and PATMI came in below our expectations. 3QFY14 revenue fell 19% YoY to S$167.4m while PATMI declined 32% to S$12.1m. Revenue declined YoY across all divisions other than Tower Crane Rental, which we view as a continuing trend from previous quarters’ results. Similar to the preceding quarter, the decline in PATMI is primarily due to lower profit contribution from Australia and Indonesia. Crane Rental operations (37.4% of revenue) continued to face headwinds in Australia due to the slowdown in mining, LNG infrastructure activities, and demand for specialised transportation services. Crane Rental was also affected by completion of major projects in Malaysia that included both crane and barge rental. Distribution division (39.3% of revenue) was impacted by weaker excavator sales in Indonesia due to weak commodities sector, reduced local purchasing power from depreciating IDR and high interest rates. Distribution division was also negatively impacted by lower cranes sales in Singapore due to a weaker demand and increased competition.
Decline in GP margins in all except one division
GP margin dropped across all divisions other than General Equipment Rental on a YoY basis. Management guided this is largely due to lower revenue but fixed depreciation charges. In particular, we note that Tower Crane Rental’s GP margin also dropped by 22ppt QoQ and 4.2ppt YoY. Management guided that this was due to higher manpower and transportation costs when transiting between projects.
Challenging environment to continue
Looking ahead to 4QFY14, management expects flat performance for Crane Rental, weak performances in General Equipment Rental and Distribution, and growth in Tower Crane Rental. While healthy pipelines of projects are expected for SEA and Hong Kong that Tat Hong could benefit from, we are concerned with the lack of turnaround in Australia, which generates 48.4% of revenue. Due to a change in analyst and assumptions, we lower our fair value estimate to S$0.72 from S$0.90 and maintain our HOLD call.
Both Tat Hong’s 3QFY14 revenue and PATMI came in below our expectations. 3QFY14 revenue fell 19% YoY to S$167.4m while PATMI declined 32% to S$12.1m. Revenue declined YoY across all divisions other than Tower Crane Rental, which we view as a continuing trend from previous quarters’ results. Similar to the preceding quarter, the decline in PATMI is primarily due to lower profit contribution from Australia and Indonesia. Crane Rental operations (37.4% of revenue) continued to face headwinds in Australia due to the slowdown in mining, LNG infrastructure activities, and demand for specialised transportation services. Crane Rental was also affected by completion of major projects in Malaysia that included both crane and barge rental. Distribution division (39.3% of revenue) was impacted by weaker excavator sales in Indonesia due to weak commodities sector, reduced local purchasing power from depreciating IDR and high interest rates. Distribution division was also negatively impacted by lower cranes sales in Singapore due to a weaker demand and increased competition.
Decline in GP margins in all except one division
GP margin dropped across all divisions other than General Equipment Rental on a YoY basis. Management guided this is largely due to lower revenue but fixed depreciation charges. In particular, we note that Tower Crane Rental’s GP margin also dropped by 22ppt QoQ and 4.2ppt YoY. Management guided that this was due to higher manpower and transportation costs when transiting between projects.
Challenging environment to continue
Looking ahead to 4QFY14, management expects flat performance for Crane Rental, weak performances in General Equipment Rental and Distribution, and growth in Tower Crane Rental. While healthy pipelines of projects are expected for SEA and Hong Kong that Tat Hong could benefit from, we are concerned with the lack of turnaround in Australia, which generates 48.4% of revenue. Due to a change in analyst and assumptions, we lower our fair value estimate to S$0.72 from S$0.90 and maintain our HOLD call.
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