VALUATION
- Tat Hong is trading at FY14 PE of 17.2x and P/B of 0.8x. Tat Hong has divested several non-core assets and streamlined part of its operations in recent months and we believe this would build a stronger Tat Hong that can withstand any cyclical downturn in the future.
- Tat Hong provides crane rental, heavy lift, heavy haulage and equipment sales services. It is the largest crane company in the Asia-Pacific region, supplying cranes ranging from <50 tonnes to 1,600 tonnes.
- Crane rental rates have remained firm in most countries except Singapore as a slowdown in construction projects coupled with heightened competition have pressured rates. In addition, management revealed that some local distributors had slashed margins in order to move inventories and book sales.
- Australia’s economy is still in recovery with its government committing to infrastructure investment. This should bode well for Tat Hong’s general rental and distribution business in the country.
- The recent divestment of the company’s non-core assets (properties in Australia, Kian Ho and Hup Hin Transport) is also a testament of the company’s goal to streamline its resources to its core expertise of crane management.
- According to the company, Australia’s contribution to the bottom-line had fallen substantially to low single-digits in FY14 from high teens as the sharp resource sector slowdown had caught the management by surprise. Coupled with the depreciation in rupiah that caused the company to record an unrealised forex loss of S$8.4m, Tat Hong’s full-year net profits fell 53.4% to S$32.8m in FY14.
- Earnings recovery from Australia to previous high remains to be seen, in our view, but improvement from last year’s doldrums should not be a challenge given Australia’s recent infrastructure investment package. In May 14, the Australian government announced that it will provide an additional AUD$11.6b to fast-track investment in critical infrastructure across the country.
- We await Tat Hong’s 1Q15 results that will be released in mid-August as it will most probably set the outlook for the rest of the year.
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