• Pre-tax loss narrowed
• Healthy demand from China bodes well
• ASEAN still facing some weakness

Soft Results With Some Bright Spots

Tat Hong recently reported its 1QFY18 results, which reflected softness with some bright spots. Revenue was up 1% YoY to S$118.3m and was 7.4% higher QoQ. The group recorded a slightly lower pre-tax loss, but saw a higher net loss of S$5.1m vs. S$3.6m in 1QFY17 mainly due to an absence of tax benefits for this quarter.

Revenue this quarter was helped by an improved performance across all business segments except for the Crane Rental division. However, margins were weaker for the Crane Rental and Tower Crane Rental division. As such, gross profit declined 13% to S$30.4m.

According to management, the silver lining is the improvement in EBITDA (excluding impairment losses) from S$3.6m in 4QFY17 to S$20.2m in 1QFY18. Pre-tax loss also narrowed to S$3.3m vs. S$3.8m on the back of lower operating expenses and better contributions from associated companies and JVs.

Certain Markets Seeing Strong Utilisation Rates

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 weaker performance from markets like Singapore, Batam and Hong Kong. Tower Crane Rental in China continued to see strong utilisation rates at ~81% with involvement in projects across various sectors.

General Equipment Rental division in Australia saw better utilisation rates with longer hire periods as well as new projects starting especially in the infrastructure space. Distribution revenue had better sales in Australia but lower demand for other markets.

Still Some Weakness in ASEAN

Management has noted some early signs of a turnaround for its Australian subsidiary Tutt Bryant Group, particularly for their general equipment rental and distribution businesses, albeit the latter segment’s contributions can be lumpy. Nevertheless, the early positive signs are underpinned by a rebound in infrastructure construction and improving market sentiments.

The group also expects continued healthy demand in China, which is supportive for the Tower Crane Rental Division. However, ASEAN countries are still facing market weakness and competitive pricing pressures. Thus the group will continue with its cost control initiatives and fleet rationalization exercise.

In consideration of the above, we revise our estimates and lower our FV from S$0.40 to S$0.37, maintain HOLD.

Source: OCBC Research - 17 Aug 2017