TAT HONG HOLDINGS LTD
T03.SI
Negative Priced In. Upgrade to HOLD.
- We upgrade our stance from negative to neutral as we believe P/BV valuations of -2SD may have priced in earnings weakness, which is at a 7-year low since GFC.
- We are however not positive on the stock as 1Q16 earnings disappointed and revealed continued weaknesses in Australia and the Crane Rental segment.
- Our 0.5x P/BV valuation for the stock represents -2SD of its 7-year historical mean which we believe is conservative.
- We prefer to base our TP on book value given the earnings uncertainty.
1Q16 core earnings below expectations.
- While headline net profit of S$2.8m (-53% y-o-y) was in line, TAT incurred a core loss of S$7m, which was below our estimate. Earnings were helped by one-off gains of S$10m from the sale of properties in Malaysia and Australia.
- Revenue (S$139m, -15% y-o-y) was down across all segments led by lower crawler/mobile segment. Margins were also lower (32.0%, -4.4% pts) on the back of lower crane rental rates, utilisation and competition.
Australia could pick up.
- The RBA is expecting Australia’s GDP growth to pick up to > 3% after June 2016. The optimism stems from improving consumption growth, household demand, net exports exchange rate depreciation, labour market and low interest rate environment.
Valuation:
- We value Tat Hong at S$0.52 pegged to 0.5x P/BV. This represents -2SD of its mean and is similar to 2008-09 GFC levels. Since our downgrade, the stock has declined c.15%.
- At the current depressed P/BV valuations, we believe the stock could find some support.
- Upgrade to HOLD on limited downside.
Key Risks to Our View:
- Earnings recovery risks. Soft business conditions could potentially drive delayed economic recovery and further earnings disappointment. But we believe depressed valuations have already priced in weak earnings.
Alfie YEO | http://www.dbsvickers.com/ DBS Securities 2015-09-01
0.52
Same
0.52
