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

TAT HONG HOLDINGS LTD T03.SI

Tat Hong Holdings - Competition remains keen

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.

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.

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

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