Tat Hong Holdings - OCBC Investment 2016-11-16: Raising up to S$41.1m from rights issue

TAT HONG HOLDINGS LTD T03.SI

Tat Hong Holdings - Raising up to S$41.1m from rights issue

Following a profit warning issued earlier, Tat Hong Holdings released its 2QFY17 results.
Revenue was down 20% YoY to S$109.8m, which were within expectations, but a net loss of S$5.4m was recorded vs. PATMI of S$4.4m in 2QFY16, partially due to lower gains from disposals this quarter.
All segments saw a decline in revenue except for Tower Crane Rental, whereby revenue was up 11% to S$25.5m.
Overall 1HFY17 revenue is down 18% to S$226.6m with a net loss of S$9m vs. a net profit of S$7.2m in 1HFY16.

The group also proposed a renounceable underwritten 1-for-5 rights issue at S$0.33/share to raise up to S$41.1m in net proceeds. This is a 27.5% discount to the closing price as of 14 Nov prior to announcement.
Group CEO Mr Ng San Tiong and certain persons acting in concert with him, have provided irrevocable undertakings to subscribe for up to 77.6% of the rights shares.
The rights issue was proposed to strengthen the group’s financial position, enlarge its capital base and enhance its financial flexibility. About 40-50% of proceeds will be used for debt repayment, and 50-60% for working capital purposes.
As of 30 Sep 2016, the group had total debt of S$500m, of which ~43% was current. Net gearing stood at 0.7x vs. 0.71x as of 31 Mar 2016.

Assuming the maximum subscription scenario where 125,776,884 rights shares will be issued, our fair value estimate is thus lowered from S$0.49 to S$0.40.
We have also lowered our P/BV peg from 0.55x to 0.5x given the prolonged uncertainty for operations.
Management does not expect conditions in the region to improve in the near future and the group will continue efforts in operational restructuring and cost containment.
Following the reaction to share price yesterday, we are keeping our HOLD rating.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2016-11-16

OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.40 Down 0.490