Tat Hong

Tat Hong: Plunged into a 4Q15 net loss of $17.1m from a net profit of $4.2m, shrinking FY15 earnings to $4.9m (-85%). Revenue for the quarter fell 12% to $136.6m with lower contributions across all its business segments - crane (-20% to $46.4m), tower crane (-3% to $22.5m), general equipment (-23% to $11.0m) and distribution (-6% to $56.7m).

Key segments performance as follows:
1) Crane rental: Weighed by the disposal of Hup Hin Transport in Jul ‘14, completion of projects in Australia and Singapore, slowdown in Singapore’s construction industry, and reduced rental activity in overseas markets such as Papua New Guinea.

2) Tower Crane Rental: Revenue for the quarter inched lower, although FY15 revenue was up 8%, due to a larger fleet size and continued participation in infrastructure, large commercial and power plant projects in China.

3) General Equipment Rental: Lower public spending, lack of infrastructure projects, general weak market conditions in Australia, coupled with market competition, resulted in lower revenue for the division.

4) Distribution: Weighed by decline in demand in Singapore, Europe and Malaysia as well as a reduction in excavator sales in Indonesia, coupled with lower equipment sales in Australia.

Gross margin narrowed to 31.9% from 36.8% on lower utilisation rates of tower cranes during the Chinese New Year break, lower rental rates in Australia and higher crane operating and relocation costs.

Meanwhile, total operating expenses jumped 49% to $49.1m, due to impairments, barring which operating expenses would have been down 8%.

Going forward, Tat Hong guides that while demand remains positive in certain markets for the Crane Rental division, weakness in the Singapore and Australia markets will impact performance from the division. Meanwhile, the tower crane rental division is expected to maintain its growth momentum in FY16.

The general equipment rental division is expected to turn in a lacklustre performance due to the slow recovery of the Australian construction sector, while trading conditions for the distribution division should remain challenging due to generally weak demand for heavy equipment in the region.
DPS of 1¢ declared, taking FY15 payout to 1.5¢ (FY14: 2¢), representing a yield of 2.5%.

At the current price, Tat Hong trades at 0.6x P/B, with a net gearing of 0.77x.