The construction industry in Australia reportedly contracted at a faster rate as the country faces the end of a mining investment boom. With Australia making up about 46% of Tat Hong’s revenue, we think the group’s crane rental business there would likely remain subdued and continue to face pricing pressure and low utilization. In China, while the group partakes in large commercial and power plant projects, we think there could be some challenges as well, as Yongmao Holdings [non-rated], a manufacturer of tower cranes had cited sluggish conditions in China last week. Meanwhile, the group continues its disposal programme to improve efficiency and become more asset-light. Thus in view of broader economic woes, particularly in the group’s core markets, we reduce our peg to 0.55x P/B, bringing our FV estimate down from S$0.60 to S$0.57. Maintain HOLD.
Australia still seeing contraction in construction
As of June, the construction industry in Australia reportedly contracted at a faster rate, attributable to the fall in mining-related projects as the country faces the end of a mining investment boom. With Australia making up about 46% of Tat Hong’s revenue, we think the group’s crane rental business there would likely remain subdued, and its general equipment rental division may continue to be affected by pricing pressure and low utilization.
Hints of potential spin-off of tower crane rental business in China
Following weak FY15 results, Tat Hong’s share price fell to a 52-week low of S$0.49, but recovered slightly after an announcement was made on 13-Jul relating to the potential spin-off of its tower crane business in China – i.e. a restructuring in the group’s subsidiaries in China was carried out to “facilitate the potential spin-off”. Forming 16% of total revenue, this segment is the only division that is seeing growth, underpinned by on-going large commercial and power plant projects. However, we note that the China market may pose some challenges as well if we take a look at Yongmao Holdings [non-rated], a manufacturer of tower cranes. Yongmao had announced last week that it expects to record a net loss for 1QFY16 due to sluggish conditions in its core market, China.
Striving to be a ‘leaner’ group
For FY16, Tat Hong continues to dispose its older properties, with one property in Malaysia sold for a consideration of RM$17.5m (~S$6.3m). It had also entered into a sale and leaseback for its properties in Australia, where the latest transaction was made for the property at 14 Ashover Road, Queensland for a consideration of A$6.25m (~S$6.5m). To improve efficiency, there are intentions to optimize the mix and size of its crane fleet. As a recap, Tat Hong had gained S$89.1m from the disposal of properties, equipment as well as the divestment of noncore assets.
Maintain HOLD
As above, in view of broader economic woes, particularly in the group’s core markets, we reduce our peg to 0.55x P/B, bringing our FV estimate down from S$0.60 to S$0.57. Maintain HOLD.
As of June, the construction industry in Australia reportedly contracted at a faster rate, attributable to the fall in mining-related projects as the country faces the end of a mining investment boom. With Australia making up about 46% of Tat Hong’s revenue, we think the group’s crane rental business there would likely remain subdued, and its general equipment rental division may continue to be affected by pricing pressure and low utilization.
Hints of potential spin-off of tower crane rental business in China
Following weak FY15 results, Tat Hong’s share price fell to a 52-week low of S$0.49, but recovered slightly after an announcement was made on 13-Jul relating to the potential spin-off of its tower crane business in China – i.e. a restructuring in the group’s subsidiaries in China was carried out to “facilitate the potential spin-off”. Forming 16% of total revenue, this segment is the only division that is seeing growth, underpinned by on-going large commercial and power plant projects. However, we note that the China market may pose some challenges as well if we take a look at Yongmao Holdings [non-rated], a manufacturer of tower cranes. Yongmao had announced last week that it expects to record a net loss for 1QFY16 due to sluggish conditions in its core market, China.
Striving to be a ‘leaner’ group
For FY16, Tat Hong continues to dispose its older properties, with one property in Malaysia sold for a consideration of RM$17.5m (~S$6.3m). It had also entered into a sale and leaseback for its properties in Australia, where the latest transaction was made for the property at 14 Ashover Road, Queensland for a consideration of A$6.25m (~S$6.5m). To improve efficiency, there are intentions to optimize the mix and size of its crane fleet. As a recap, Tat Hong had gained S$89.1m from the disposal of properties, equipment as well as the divestment of noncore assets.
Maintain HOLD
As above, in view of broader economic woes, particularly in the group’s core markets, we reduce our peg to 0.55x P/B, bringing our FV estimate down from S$0.60 to S$0.57. Maintain HOLD.
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