Tat Hong

Tat Hong: In a feature article on Tat Hong, the Business Times highlighted that the crane operator is in the midst of restructuring its business operations in Australia and Singapore, following the slump in the commodities markets and stiff competition.

As part of the restructuring process, Tat Hong intends to sell some of its property or assets, and shift some assets to other geographical locations.

Despite the slowdown in its major markets, the group believes that there are still pockets of opportunities across Asia, citing China, Malaysia, Thailand and Hong Kong.

China currently makes up about 1/6 of Tat Hong’s revenue as of 9MFY15, and the group aiming for China to contribute to at least a third of its total revenue in the longer term, led by the growing urbanisation of the country. The group is however slowing down its pace of growth in China for now, in a bid to ensure that safety and service standards are met.

As for its major market, Australia, management believes that the worst is over, and expects the group to do better in 2015, adding that it had previously faced stiff competition from European crane companies, which had aggressively cut rental rates but lacked adequate safety standards.

Tat Hong is also transferring older cranes to other Asean destinations like Thailand and Malaysia, in a bid to improve the utilization of its assets.

Meanwhile, crane rental rates in Singapore have fallen ~20%, partly due to Chinese contractors bringing in their own cranes for projects. Tat Hong however does not intend to sacrifice its margins to compete head-on, and will redeploy its assets elsewhere where it commands a stronger presence.

The group cautions that Asia will remain a difficult market over the next two years, and hence will need to trim some “fat” to survive in the longer run.

At the current price, Tat Hong trades at 17.8x forward P/E and 0.7x P/B.