Tat Hong

Tat Hong: Grp announced its 1H13 results which were in line. 1H12 rev came in at $431.3m, +26% yoy. Gross profit +33% to $164.8m. Net profit grew by 88% yoy to $34.0m. The strong performance can be attributed to robust growth in highest-margin Crane Rental sector and turnaround in China business. Crane Rental sector, which is the highest margin sector, performed very strongly with 58% increase in rev. Tower crane, which suffered from local shareholder issue last yr, posted the second strongest performance with 28% yoy increase in rev. Distribution sector also registered a 13% increase in rev while General Equipment Rental rev increased marginally by 4% yoy. Utilization rate continues to improve on yoy basis. Crawler crane utilization rate stood at a very healthy level of 72.5% in 2QFY13 vs 67.9% yoy. Although slightly lower than 74% of last qtr as some of the contracts matured by this qtr, expect utilization to edge higher in 2H as new contracts in pipeline kick in. Rev in China increased by 28% yoy in 1H, better than expectation. Much-higher-than-expected utilization rate of 79.9% suggests robust demand. Expect Tat Hong’s China business to double its gross profit and make meaningful contribution to the group in FY3/13. Overall, Maybank likes Tat Hong’s multi-yr growth story and reiterate its BUY call. Believe current valuations of 11.4x FY3/14 PE is not expensive for a 30% EPS growth company and change TP to $1.78 and roll forward valuation to FY3/14 and take into account the EPS dilution from recent placement.