Tat Hong Holdings - Competition remains keen
- New projects helping tower crane rental segment.
- Tough conditions particularly in key markets.
- Mixed outlook across segments.
Tower Crane Rental in China going steady
- Following Tat Hong’s latest quarterly results, we highlight that the group’s Tower Crane Rental division in China remains the bright spot, as the group saw higher utilization rates as a result from participation in new projects.
- Segment revenue was up 14% and 10% in 3Q and 9MFY17 respectively, while excluding the impact of a weaker RMBSGD, revenue would have increased 21% and 17% accordingly. This segment is expected to perform well with a pipeline of committed projects across several sectors such as commercial building, infrastructure, transport and power generation sectors.
Tough operating conditions amid strong competition
- While there have been signs of more infrastructure spending coming back, strong competition remains in the industry, particularly in their key markets, Australia and Singapore.
- The group’s 3QFY17 revenue was down 3% YoY to S$121.5m while the group recorded a small positive PATMI of S$0.2m, vs. a net loss of S$6.7m in 3QFY16. 9MFY17 revenue was down 13% to S$348m with a net loss of S$8.8m.
- Crane Rental division’s revenue was down 35% in 3Q as Australia and Singapore operations faced lower utilization rates due to completion of projects, downward pressure on rental rates and closure of the specialized transport business in Australia from Apr 2016.
- General Equipment Rental segment did see better utilization and 5% higher revenue on the back of new projects in Australia, while the Distribution segment improved 21% in revenue due to higher equipment sales to Malaysia, Japan and Europe.
Cost containment efforts to continue
- The bottomline during the quarter was helped by a gain of S$5.2m from a property disposal in Australia, as well as a disbursement of S$6.5m with respect to guaranteed trade receivables. But there was a non-cash impairment charge of S$1.2m, and management expects full year FY17 to be negatively impacted by likely impairments and on-going restructuring costs.
- The outlook for the group remains mixed across its business divisions with tower crane rental business as the steady performer, while we expect cost containment efforts to continue.
- We maintain our HOLD rating with an unchanged S$0.40 fair value estimate.