Tat Hong Holdings - OCBC Investment 2017-03-10: Competition remains keen

Tat Hong Holdings - OCBC Investment 2017-03-10: Competition remains keen TAT HONG HOLDINGS LTD T03.SI

Tat Hong Holdings - Competition remains keen

  • New projects helping tower crane rental segment.
  • Tough conditions particularly in key markets.
  • Mixed outlook across segments.

Tower Crane Rental in China going steady 

  • Following Tat Hong’s latest quarterly results, we highlight that the group’s Tower Crane Rental division in China remains the bright spot, as the group saw higher utilization rates as a result from participation in new projects. 
  • Segment revenue was up 14% and 10% in 3Q and 9MFY17 respectively, while excluding the impact of a weaker RMBSGD, revenue would have increased 21% and 17% accordingly. This segment is expected to perform well with a pipeline of committed projects across several sectors such as commercial building, infrastructure, transport and power generation sectors.

Tough operating conditions amid strong competition 

  • While there have been signs of more infrastructure spending coming back, strong competition remains in the industry, particularly in their key markets, Australia and Singapore.
  • The group’s 3QFY17 revenue was down 3% YoY to S$121.5m while the group recorded a small positive PATMI of S$0.2m, vs. a net loss of S$6.7m in 3QFY16. 9MFY17 revenue was down 13% to S$348m with a net loss of S$8.8m.
  • Crane Rental division’s revenue was down 35% in 3Q as Australia and Singapore operations faced lower utilization rates due to completion of projects, downward pressure on rental rates and closure of the specialized transport business in Australia from Apr 2016. 
  • General Equipment Rental segment did see better utilization and 5% higher revenue on the back of new projects in Australia, while the Distribution segment improved 21% in revenue due to higher equipment sales to Malaysia, Japan and Europe.

Cost containment efforts to continue 

  • The bottomline during the quarter was helped by a gain of S$5.2m from a property disposal in Australia, as well as a disbursement of S$6.5m with respect to guaranteed trade receivables. But there was a non-cash impairment charge of S$1.2m, and management expects full year FY17 to be negatively impacted by likely impairments and on-going restructuring costs. 
  • The outlook for the group remains mixed across its business divisions with tower crane rental business as the steady performer, while we expect cost containment efforts to continue. 
  • We maintain our HOLD rating with an unchanged S$0.40 fair value estimate.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2017-03-10
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.400 Same 0.400