Kim Eng on 13 Sept 2012
We are raising our earnings forecasts and target price. We are turning more optimistic on Tat Hong after meeting management. The strong performance of the past few quarters suggests that Tat Hong’s recovery is taking place even faster than we expected. We raise our net profit forecasts for the next three years on the back of higher rental rate estimates. We maintain our BUY rating on Tat Hong with a higher target price of SGD1.74, pegged to 15x FY3/13 PER.
Tat Hong is entering a multi-year growth cycle. Tat Hong is experiencing the best time in its operating history with booming demand from all countries it operates in. Current order book already provides good earnings visibility for at least the next 2 years.
Insatiable demand as infrastructure boom in Asia continues. The supply-demand profile of the crane rental industry in Asia is very imbalanced. Of the top five crane rental companies in the world, Tat Hong is the only one located in Asia; the rest are in the US and Europe. Demand-wise, infrastructure spending in Asia will continue to outpace that of Europe and the US. This supply-demand mismatch will keep Tat Hong very busy for the next few years.
Premium pricing to prevail. We understand that Tat Hong has been able to charge a premium over its competitors. This can be attributed to the higher quality of its cranes, wider range of products, a larger fleet ize and less competition in the high-tonnage crane segment. We believe Tat Hong will continue to enjoy a ricing advantage over its peers going forward, as no players in the region can achieve a fleet size comparable to Tat Hong’s in the short term.
Buying into Tat Hong’s ROE uptrend. Tat Hong has been investing heavily over the last few. We believe investors will be buying into its ROE upcycle as Tat Hong enjoys operating leverage over the next 3-5 years. Coupled with its strong and rising dividend yield, Tat Hong offers both growth and yield which is a rare and potent combination.
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