Tat Hong’s FY14 revenue came in below our estimate and consensus by 4.5% and 1.7% respectively as it declined 18% to S$684m. PATMI dropped by a proportionately larger 53% to S$32.8m. When adjusted for one-off items in 4QFY14, FY14 PATMI would have been S$37.1m − 2.8% below our estimate but 14.2% below consensus. The sharp drop in PATMI is attributable to a slowdown in business activities as well as lack of operational efficiency when scaling down. Management shared a cautiously optimistic outlook for Tat Hong’s bottom line in FY15 as they expect: 1) better performances from Crane Rental and General Equipment Rental divisions, and 2) lower operating expenses as staff strength is reduced. We derive a new fair value estimate of S$0.89 (previous: S$0.72) based on 11.2x FY15F EPS and maintain HOLD.
Unimpressive FY14 results
Tat Hong’s FY14 revenue came in below our estimate and consensus by 4.5% and 1.7% respectively as it declined 18% to S$684m. PATMI dropped by a proportionately larger 53% to S$32.8m. When adjusted for the S$3.4m impairment charge in an associate company and S$0.9m foreign exchange loss incurred in 4QFY14, FY14 PATMI would have been S$37.1m − 2.8% below our estimate but 14.2% below consensus. The sharp drop in PATMI is attributable to a slowdown in business activities as well as lack of operational efficiency when scaling down. Revenue and gross profit declined YoY across all divisions other than Tower Crane Rental. For the former, it is a trend present even when examining from a QoQ basis.
Management cautiously optimistic about FY15
Management shared a cautiously optimistic outlook for Tat Hong’s bottom line in FY15 as they expect: 1) better performances from the Crane Rental and General Equipment Rental divisions (collectively 46.3% of revenue in 4QFY14), and 2) lower operating expenses as staff strength is reduced. Australia, a key culprit for the sharp drop in Tat Hong’s FY14 results, is likely to contribute more to the Crane Rental and General Equipment Rental divisions as several large infrastructure projects and LNG works come on-board. Management also guides growth from Thailand and Hong Kong, though the former could be held back by the current political uncertainty.
Share price supported by book value; maintain HOLD
We derive a new fair value estimate of S$0.89 (previous: S$0.72) based on 11.2x FY15F EPS and maintain HOLD. While we do not expect FY15F EPS to match FY13’s, we expect it to improve from FY14 largely due to lower operating expenses (FY13: 11.0 S-cent; FY14 5.1 S-cents; FY15F: 7.9 S-cents). We hold back on strong revenue growth assumptions as there is a lack of clarity on the timeline and size of future projects. However, we think that the current share price (S$0.86) is well-supported at a 20% discount to FY15F book value per share. Thus, we would look to accumulate if it drops below S$0.81.
Tat Hong’s FY14 revenue came in below our estimate and consensus by 4.5% and 1.7% respectively as it declined 18% to S$684m. PATMI dropped by a proportionately larger 53% to S$32.8m. When adjusted for the S$3.4m impairment charge in an associate company and S$0.9m foreign exchange loss incurred in 4QFY14, FY14 PATMI would have been S$37.1m − 2.8% below our estimate but 14.2% below consensus. The sharp drop in PATMI is attributable to a slowdown in business activities as well as lack of operational efficiency when scaling down. Revenue and gross profit declined YoY across all divisions other than Tower Crane Rental. For the former, it is a trend present even when examining from a QoQ basis.
Management cautiously optimistic about FY15
Management shared a cautiously optimistic outlook for Tat Hong’s bottom line in FY15 as they expect: 1) better performances from the Crane Rental and General Equipment Rental divisions (collectively 46.3% of revenue in 4QFY14), and 2) lower operating expenses as staff strength is reduced. Australia, a key culprit for the sharp drop in Tat Hong’s FY14 results, is likely to contribute more to the Crane Rental and General Equipment Rental divisions as several large infrastructure projects and LNG works come on-board. Management also guides growth from Thailand and Hong Kong, though the former could be held back by the current political uncertainty.
Share price supported by book value; maintain HOLD
We derive a new fair value estimate of S$0.89 (previous: S$0.72) based on 11.2x FY15F EPS and maintain HOLD. While we do not expect FY15F EPS to match FY13’s, we expect it to improve from FY14 largely due to lower operating expenses (FY13: 11.0 S-cent; FY14 5.1 S-cents; FY15F: 7.9 S-cents). We hold back on strong revenue growth assumptions as there is a lack of clarity on the timeline and size of future projects. However, we think that the current share price (S$0.86) is well-supported at a 20% discount to FY15F book value per share. Thus, we would look to accumulate if it drops below S$0.81.
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