TAT HONG HOLDINGS (TAT SP)

Key takeaways from investor?s meeting

VALUATION

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its 12-month target price at S$1.10. Tat Hong has underperformed the FSSTI, with

share price declining 35.1% ytd against the index?s -3.6%, as several brokers

downgraded their earnings forecasts and target prices following two quarters of

weak earnings.Tat Hong is trading at forward PE of 11.1x and P/B of 0.83x. Bloomberg estimates

INVESTMENT HIGHLIGHTS

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services. It is the largest crane company in the Asia-Pacific region, supplying cranes

ranging from under 50 tonnes to 1,600 tonnes. Tat Hong has also aggressively

expanded its tower crane rental business in China and is the second-largest tower

crane company in the country.Tat Hong provides crane rental, heavy lift, heavy haulage and equipment sales

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51%, 2Q14: -53%) as weaker economic outlook in Indonesia and Australia eroded

revenue from the crane rental and distribution businesses. These two segments

contributed 78.4% of the company?s top-line.Tat Hong reported two sequential declines in quarterly net profits in FY14 (1Q14: -

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market and transportation expenses increase for the relocation of cranes under the

tower crane rental division. The company is also affected by unrealised foreign

exchange losses arising from inter-company loans and payables related to its

Indonesian operations due to a steep devaluation of the rupiah. Net profit of

S$16.4m in 1HFY14 made up only 23.3% of FY13 earnings.The company faces cost pressures as wages continue to rise due to the tight labour

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transport income from Australia?s subdued mining and infrastructure activities.

Gross margin from the segment retreated to 52.0% from 56.6% in 1QFY14 on

higher labour costs despite an improvement of utilisation rate in the quarter.

Revenue from the distribution segment (40.5% of 2QFY14 revenue) also fell 17%

yoy to S$75.0m due to an economic slowdown in Australia and reduced excavator

sales in Indonesia.Crane rental?s revenue fell 14% yoy to S$70.3m in 2Q14 due to weaker specialised

OUR VIEW

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0.98x, any increase in earnings will largely be dependent on the Australian?s

economic growth, which has remained muted after reporting a seasonally adjusted

0.6% in 3Q13. Its Reserve Bank also revised down the country?s growth forecasts

for 2014 and 2015 after it said mining investment was set to fall off at a faster-thanexpected

pace next year.While Tat Hong is now trading at a 15.7% discount to its 3-year average P/B of

KEY FINANCIALS

Year to 31 Mar (S$m) FY11 FY12 FY13 2Q13 2Q14

Net Turnover 584.2 719.8 836.9 216.0 185.3

Gross Profit 208.5 263.0 314.9 80.3 68.1

EBITDA 122.2 153.5 192.5 48.8 44.0

EBIT 62.9 83.9 111.3 28.8 22.5

Net Profit 26.0 42.3 70.4 17.3 8.2

EPS (cts) 4.56 7.42 11.62 3.01 1.28

P/E (x) 19.3 11.9 7.6 - -

P/B (x) 1.0 0.9 0.9 0.8 0.8

Dividend Yield (%) 1.7 1.7 2.8 - -

Net Margin (%) 4.4 5.9 8.4 8.0 4.4

Net Gearing (%) 60.8 63.4 60.1 56.9 55.8

Interest cover (x) 3.3 3.7 4.4 - -

ROE (%) 23.6 23.0 29.3 - -

Source: Tat Hong, Bloomberg, UOB Kay Hian