Tat Hong Holdings - OCBC Investment 2017-09-20: Cease Coverage

Tat Hong Holdings - OCBC Investment 2017-09-20: Cease Coverage TAT HONG HOLDINGS LTD T03.SI

Tat Hong Holdings - Cease Coverage

  • Tower Crane Rental segment growing.
  • Soft outlook.
  • Prolonged concern on overall recovery.

Mixed performance thus far 

  • Over the past few years, industry players had been facing market weakness and competitive pricing pressures, and Tat Hong’s results have also been reflecting a mixed performance across its main business segments (Crane Rental, Tower Crane Rental, Distribution, General Equipment Rental). 
  • Tat Hong’s 1QFY18 results continued to show softness albeit with some bright spots. Revenue was up 1% YoY to S$118.3m and was 7.4% higher QoQ. 
  • All segments except Crane Rental recorded better revenues YoY – Tower Crane Rental (+8%), General Equipment Rental (+25%), and Distribution (+7%), but Crane Rental division was down 17% due to lower rental rates in Singapore, lower activity levels in Batam, and completion of projects in Hong Kong. 
  • As margins were also weaker for the Crane Rental and Tower Crane Rental division, gross profit declined 13% to S$30.4m with a net loss of S$5.1m vs. S$3.6m in 1QFY17, mainly due to an absence of tax benefits for this quarter.

Some positive signs 

  • As of the latest quarter, Crane Rental division accounted for ~27% of overall revenue, with Tower Crane Rental at 22%, General Equipment Rental at 12% and Distribution at 39%. Tower Crane Rental saw strong utilisation rates at ~81% with involvement in projects across the building, infrastructure, transport and power generation sectors. 
  • General Equipment Rental division in Australia saw better utilisation rates with longer hire periods as well as new projects. Distribution revenue had better sales in Australia but lower demand for other markets, while we keep in mind that segment’s contributions can be lumpy.

Ceasing coverage 

  • Management has noted some early signs of improved market sentiments in its key market Australia. The group also expects continued healthy demand in China, which bodes well for the Tower Crane Rental division.
  • However, weakness in ASEAN countries is likely to continue weighing on performance for its Crane Rental division. Thus against this backdrop, the group will continue with its cost control initiatives and fleet rationalization exercise. 
  • With that said, due to an internal reallocation of resources, we are ceasing coverage on the stock.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2017-09-20
OCBC Investment SGX Stock Analyst Report CEASE Maintain HOLD 99998 Same 0.370