Tat Hong Holdings - OCBC Investment 2016-09-19: Lack of catalysts

Tat Hong Holdings - OCBC Investment 2016-09-19: Lack of catalysts TAT HONG HOLDINGS LTD T03.SI

Tat Hong Holdings - Lack of catalysts

  • Discussions with counter-party ceased.
  • Sector still facing a tepid outlook.
  • Tower Crane Rental segment remains bright spot.

Potential transaction by counterparty dropped 

  • Back in Mar 2016, Tat Hong Holdings had announced the company was approached with regards to a potential transaction which may or may not lead to an acquisition of the company’s issued share capital. 
  • Following several months of discussions, according to the latest announcement on 8 Sep, the counter-party would not be proceeding with its assessment of the potential transaction at this stage, given the current economic conditions impacting the counter-party’s business. Thus Tat Hong has ceased discussions with the counter-party.
  • Following this, the group has stated it will continue to evaluate strategic options or opportunities that may arise from time to time, to enhance shareholder value.

Tat Hong’s Tower Crane Rental segment as key support 

  • In view of the loss of the above potential catalyst, the group’s share price had taken a ~10% dip before recovering slightly. 
  • Focusing on the group’s outlook, the operating environment continues to be challenging amid subdued demand in key markets. This is mirrored by the group’s peers, largely in terms of pressure on earnings. 
  • Recall that most firms had reported net losses including Tat Hong, while excluding oneoffs, the group’s estimated core PATMI could have been a small profit of S$0.6m. 
  • We reiterate the bright spot coming from Tat Hong’s Tower Crane Rental segment, whereby revenue had continued to improve 5% YoY for 1QFY17, underpinned by commencement of new projects.

Keeping our rating 

  • Given the lack of catalysts at this juncture, our target peg is reduced from 0.6x to 0.55x P/BV, resulting in a fair value estimate of S$0.49 (previous: S$0.54). 
  • We are keeping our HOLD rating, on the basis of potential growth for its Tower Crane Rental segment as well as keeping in mind management’s efforts to continue controlling operating expenses amid tough times.
  • Measures that have been put in place to improve operating performance include reducing expenses on staff level, disposal of under-utilized assets, strict capex control and scaling down of unprofitable businesses.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2016-09-19
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.49 Down 0.540