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

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

  • Net loss of S$5.4m in 2QFY17.
  • Rights issue price of S$0.33/share.
  • Outlook still cloudy.

Another quarter in a net loss 

  • 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.

1-for-5 rights issue announced at S$0.33/share 

  • 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.

Prolonged uncertainty 

  • 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