Tat Hong Holdings - OCBC Investment 2016-07-13: Sector At Inexpensive Levels

Tat Hong Holdings - OCBC Investment 2016-07-13: Sector At Inexpensive Levels TAT HONG HOLDINGS LTD T03.SI 

Tat Hong Holdings - SECTOR AT INEXPENSIVE LEVELS

  • AUS PCI recovered in Jun
  • Sector still facing subdued outlook
  • Keeping our view



Australia’s construction industry could be recovering

  • One of the latest indicators suggests that Australia’s construction sector could be seeing a general recovery. The Australian Performance of Construction Index (PCI) for Jun-16 had gained 6.5 points MoM to 53.2, reportedly the highest rate of expansion since Aug-15. 
  • Meanwhile, Tat Hong’s Australian subsidiary Tutt Bryant Group has not been spared from increased competition amid a weak environment in Australia. 
  • While the construction industry could be recovering, the contributions are still largely coming from the residential sub-sectors and the group ultimately has to win new projects, especially from non-residential sub-sectors.


Inexpensive valuations for sector

  • As of the company’s latest announcement on 15 Jun, we understand discussions are still on-going regarding a potential transaction that may or may not lead to an acquisition of the issued share capital of the company. 
  • We note that the crane rental industry has been facing a prolonged challenging period and local companies have seen a de-rating in valuations to inexpensive levels. Thus further consolidation may naturally occur in the sector. 
  • Looking at the global crane industry, one of the latest M&A developments includes Austria’s Palfinger AG’s intention to make a takeover bid for Norwegian company TTS Group ASA at NOK5.60/share. This represents ~0.76x P/BV of the latter. For the local crane rental players (Tat Hong, Tiong Woon, Hiap Tong Corp, MS Holdings, Sin Heng), they are currently trading at an average of ~0.5x P/BV.


Keeping our HOLD rating

  • We reiterate that there is no certainty or assurance that the stated discussions will result in any transaction. 
  • Notwithstanding the potential acquisition, we believe China remains the bright spot for the group as they continue their cost-saving measures, as well as clean up other non- core, unprofitable businesses. 
  • We maintain our HOLD rating. 
  • Our fair value is raised from S$0.50 to S$0.55 based on slightly higher 0.6x P/BV (previous: 0.55x) as we believe the group should command a certain premium to its peers.




Jodie Foo OCBC Securities | http://www.ocbcresearch.com/ 2016-07-13
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.55 Up 0.50


Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......