Tat Hong Holdings - OCBC Investment 2016-08-19: No change to sector view

Tat Hong Holdings - OCBC Investment 2016-08-19: No change to sector view TAT HONG HOLDINGS LTD T03.SI

Tat Hong Holdings - No change to sector view

  • Net losses for sector peers as well.
  • Tat Hong’s earnings dragged by FX losses.
  • Inexpensive valuations for sector. 

Sector still facing losses 

  • Following Tat Hong’s reported net loss position for 1QFY17, we recently saw two of Tat Hong’s peers, Tiong Woon Corporation and Sin Heng Heavy Machinery releasing profit guidance notices for their latest earnings. 
  • Tiong Woon expects to report a net loss for FY16, largely due to provision for doubtful debts. In addition, Sin Heng expects to record a net loss for 4Q16 and FY16, partly attributable to lower revenue and the disposal of certain non-performing, old-aged cranes. 
  • The tepid outlook for the industry will likely continue to weigh on earnings recovery, in our view.

Tat Hong hit by unfavourable FX movements 

  • Tat Hong’s 1QFY17 revenue declined 16% YoY to S$116.7m, meeting 23% of our full year expectations, as all segments other than Tower Crane Rental (TCR) segment recorded lower revenues. 
  • Keeping in mind our previous full year forecast for a net loss of ~S$10m, the group reported a net loss of S$3.6m vs. a net profit of S$2.8m in 1QFY16, due to an estimated S$4.2m of unrealized foreign exchange losses arising from unfavourable currency movements. This referred to the depreciation of AUD, USD and RMB against the SGD and the appreciation of JPY vs. AUD and SGD. 
  • Excluding one-offs, estimated core PATMI would have been a small profit of ~S$0.6m. Notably, TCR’s segment revenue rose 5% YoY to S$24.5m on higher utilisation due to commencement of new projects. 
  • Since 3QFY16, the fleet size and utilisation for this segment have increased by 40 units to 929 units and by 10.9ppt to 83.1% respectively.

Maintain HOLD 

  • Unlike other peers in the sector which generate revenue largely from Singapore, Tat Hong has a relatively diversified revenue exposure to several key markets, such as Australia and China. 
  • However, demand in most markets is expected to remain subdued, especially for Australia. We expect the Tower Crane Rental segment to offer support to their earnings. In addition, Tat Hong’s share price is likely to be supported to some extent by an on-going possible transaction as previously announced by the company. 
  • We maintain our HOLD rating and a tad lower fair value of S$0.54 (previous: S$0.55), based on 0.6x P/BV.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2016-08-19
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.54 Down 0.550