As good as expected. Tat Hong’s 9MFY3/13 results were as good as expected. 9M revenue came in at SGD637.3m, up 19% yoy. Gross profit increased by 25% to SGD238.8m. Net profit grew by 67% yoy to SGD51.8m. The main drivers still were robust growth in highest-margin Crane Rental sector and the turnaround of Tower Crane Rental business in China.

Sector performance. Crane Rental sector continued to be the growth engine with 47% increase in revenue, driven by robust demand in regional infrastructure and LNG projects in Australia. Tower crane rental in China continued to recover with 27% yoy increase in revenue. However, mainly due to weaker demand from infrastructure and mining sector in Australia, the growth in distribution and general equipment rental sector slowed down. Revenue from distribution sector grew only by 5% yoy while revenue from general equipment rental sector dropped slightly by 1%.

Expect higher utilization in 4Q. Crawler crane utilization rate still stayed at a high level of 71.0% in 3QFY13. Although slightly lower than 72.5% of last quarter, we expect utilization to edge higher in 4Q as new contracts in pipeline, especially those related to the LNG projects in Australia, kick in.

Outlook for the next year. It is only less than two months away from the end of Tat Hong’s FY3/13 financial year now. We are confident that our full-year earnings forecast can be achieved. We expect the growth momentum to continue in FY3/14. Infrastructure activities in the region and the Oil&Gas sector in Australia will continue to support revenue growth. The recovery of tower crane rental in China also seems sooner than expected. This sector will likely to surprise us next year as the urbanization in China going on. Other surprise could come from M&As.

Strong BUY maintained. We continue to like Tat Hong’s growth story and reiterate our BUY call. We leave our earnings forecast unchanged due to the in-line results and maintain our target price of SGD1.78

Source: Maybank Kim Eng Research - 15 Feb 2013