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Tat Hong Holdings - DBS Research 2015-11-17: No signs of recovery

Tat Hong Holdings - DBS Research 2015-11-18: No signs of recovery TAT HONG HOLDINGS LTD T03.SI 

Tat Hong Holdings - No signs of recovery 


Maintain HOLD. 

  • We maintain our neutral stance on the stock as the outlook remains uncertain. P/BV valuations are currently depressed at 0.5x and near -2SD of its 7-year mean. 2Q16 earnings disappointed, but the depressed valuations should have priced in the weak earnings. 
  • In addition, we expect the recovery in Tat Hong’s earnings to be long drawn on slow mining, oil & gas development and construction activities in Australia. 

2Q16 core earnings below expectations. 

  • Tat Hong reported core losses for 2Q16 as headline net profit of S$4.4m included about S$10m of one off gains, from crane sales and fair value adjustment on derivatives. Otherwise, revenue (S$137m, -10% y-o-y) and operating profit (S$5.3m, -58% y-o-y) were within expectations. 
  • The key areas of disappointment came from higher than expected interest expenses, lower JV/associate income and FX losses. 

Slow pick up in Australia. 

  • The RBA is expecting a slow recovery in Australia’s GDP. GDP is forecast to expand slowly from 2.25% currently to 2-3% in 2016 and 2.75-3.75% in 2017. 
  • The optimism stems from improving consumption growth, household demand, net exports, exchange rate depreciation, labour market and low interest rate environment. But, mining investment outlook continues to fall in the near term and non-mining business investments are currently subdued. 

Valuation: 

  • Our TP is S$0.52 pegged to 0.5x P/BV. This represents -2SD of its mean and is similar to 2008-09 GFC levels. 
  • At the current depressed P/BV valuations, we believe the stock could find some support. Upside now depends on timing and pace of earnings recovery. 

Key Risks to Our View: 

  • Earnings recovery risks. Soft business conditions could potentially delay economic recovery and lead to further earnings disappointment. But we believe depressed valuations have already priced in the weak earnings outlook.


Alfie Yeo DBS Vickers | http://www.dbsvickers.com/ 2015-11-17
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.52 Same 0.52


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