• Core markets remain weak
• Cost reduction plans to help
• Reduced FV to S$0.60

Key markets AU and SG for players drags growth

For local crane players such as Tiong Woon [nonrated], Singapore contributes more than 50% of their total revenue. As these companies have been facing declines in earnings, there is a general consensus on the challenging local scene, with Hiap Tong Corporation [non-rated] citing an oversupply of cranes and a slowdown in demand. For Tat Hong, its core market Australia contributes about 46% of the group’s revenue. A persistent muted outlook there is mainly attributable to a slowdown in economic growth and mining activity.

Other markets provide some stability

Certain markets seem to be relatively stable, such as Hong Kong and Thailand, wherein Tat Hong had maintained its level of crane rental revenue on the back of on-going projects. Tat Hong has had higher value infrastructure projects from Malaysia such as the Sabah Ammonia and Urea Plant. Forming 16% of total revenue, Tat Hong’s tower crane rental business in China remained the only segment that grew, although there was a slight 3% decline in revenue in 4QFY15 due to completion of projects and timing factor. Operations continue to be supported by large commercial and power plant projects.

Cost cutting efforts to continue

Companies are pushing for cost cutting measures to help tide them over tough times. Tat Hong’s recently announced FY15 results was hit by a S$30.8m goodwill and asset impairment by the group’s Australian entities, albeit offset by gains on disposals (~S$26m) and foreign exchange gain (~S$11.1m). FY15 revenue was down 11% to S$608.6m and PATMI declined 85% to S$4.9m. Excluding one-offs, estimated core PATMI was at ~S$11m. The group intends to look at optimizing the mix and size of their fleet, as well as controlling the level of operating expenses. Net gearing had improved to 0.77x from 0.87x.

Maintain HOLD

On expectations for a stagnant year ahead, we reduce our fair value estimate from S$0.63 to S$0.60, based on 0.6x FY16F P/B, and keep our HOLD rating. While there is a lack of catalysts, we keep in mind that the group is still exploring a potential spin-off of its tower crane rental business.

Source: OCBC Research - 9 Jun 2015