• Performance in Australia still a concern
• Higher contribution from SEA countries
• Muted outlook

Results still unexciting

A cursory glance at Tat Hong’s 3QFY15 results would have presented another weak showing compared to 3QFY14, with revenue lower by 7.4% YoY to S$154.9m while PATMI at S$4.5m saw a steep decline of 62.7%. On a QoQ basis, revenue was marginally higher by 1.4%. More importantly, management highlighted that there was in fact an improvement in this quarter’s underlying profit if we excluded the one-off gain of S$13.0m received in 3QFY14 from the disposal of the purchase rights for a plot of land in Iskandar, Malaysia. Its 3QFY15 bottom line was helped by lower operating expenses, which dropped S$12.1m or 24% to S$38.8m. This is attributed to the divestment of a crane rental subsidiary, Hup Hin Transport earlier in July-14, as well as lower staff expenditure, insurance and warranty expenses. With that said, we believe this quarter’s numbers were still unexciting as 3QFY15 was also helped by a net foreign exchange gain of S$4.8m due to stronger RMB and USD against SGD, without which, its bottom line would have conceivably been worse off as well.

Only Tower Crane segment grew as usual

Similar to previous quarters, overall revenue dropped YoY across all business segments other than Tower Crane Rental, which saw a 6% growth to S$25.1m. Weak conditions in Australia led to double-digit declines in revenue for General Equipment Rental (-13% to S$13.3m) and Distribution (-15% to S$55.9m). On a positive note, we saw SEA countries and Hong Kong increased contribution by 50% YoY to an aggregate S$37.1m or 24% of total revenue, with stable crane rental revenue attained in Hong Kong and Thailand.

Maintain HOLD

Following a change in analyst coverage and a revision of forecasts based on a more modest outlook, we derive a new fair value estimate of S$0.75 (previous: S$0.84) pegged to an approximate five-year average p/e of 14x FY16F EPS. While the counter’s share price has fallen by ~10% over the past three months, current valuation appears fair rather than attractive, thus we maintain HOLD.

Source: OCBC Research - 16 Feb 2015