TAT HONG HOLDINGS LTD
T03.SI
Tat Hong Holdings - Craning under poor visibility
Maintain HOLD.
- We maintain our neutral stance on the stock as the outlook remains uncertain.
- P/BV valuations are currently depressed at 0.6x and near -1SD of its 4-year mean.
- FY16 earnings disappointed, but the depressed valuations should have priced in the weak earnings.
- Stock price appears bombed out. But there are also no signs of earnings recovery that will re-rate the stock, apart from potential privatisation. Hence we are staying neutral for now.
FY16 earnings below expectations.
- Tat Hong reported losses of S$39m for FY16 on headline revenue of S$528m (-13% y-o-y).
- FY16 saw revenue declines across all segments especially in crane rental (-21% y-o-y). Margins also narrowed, affected by lower crane utilisation and relatively higher operating expenses.
- The net losses were exacerbated by impairments for the Australia business, FX losses, higher-than-expected interest expenses, and lower JV/associate income.
Earnings recovery lacks visibility.
- We note that Australia continues to be slow for Tat Hong with poor visibility for earnings recovery. The low oil prices and weak demand for resources in China will limit work and services provided to these sectors there. There has also been no pick-up in activity in their construction sector.
- Construction work done has declined y-o-y for seven consecutive quarters since CY3Q14.
- We await signs of recovery before turning positive on earnings.
Valuation:
- We continue to peg our TP at -1SD of its mean at 0.6x P/BV, which translates into a S$0.56 TP.
- At the current depressed P/BV valuations, we believe the stock could find some support. Upside catalysts for now include a potential privatisation.
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
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http://www.dbsvickers.com/
2016-06-10
DBS Vickers
SGX Stock
Analyst Report
0.56
Up
0.52
