Tat Hong

Tat Hong: 2QFY13 net profit halved y/y to $8.2m while revenue fell 14% y/y to $185.3m as all units except tower crane division turned in weaker performances especially in Australia and Indonesia amid poor demand conditions Distribution division (-16.5% y/y, 40.5% of revenue) contributed $75m in revenue from lower equipment sales in Australia, due to a slowdown in the general economy, decline in sales of excavators in Indonesia on the back of weaker commodity prices, and lower sales recorded in Singapore arising from a decline in demand especially from the marine sector. Crane rental (-13.6% y/y, 37.9% of revenue) contributed $70.3m due to reduced specialised transport activities from subdued mining and infrastructure activities in Australia, while in Malaysia, barge rental income dropped as a major project which requires barges and cranes was completed in 4QFY13. The decrease was partially mitigated by participation in MRT Downtown lines 2 and 3 projects, Wan Chai By-pass project, and Bangkok Mass Transit System project. General Equipment rental (-33 y/y, 9.4% of revenue) was $17.4m due to competition and weak demand resulting from a slowdown in the mining and civil construction sectors in Australia. Earnings were also eroded by net FX losses of $5.2m and lower contributions from joint ventures (-68%) and associates (-20%) Management highlights that the sector outlook of its key markets still remain challenging and barring unforeseen circumstances, Tat Hong is cautiously optimistic of its performance for 2HFY2014 Interim DPS shaved to 1¢ from 1.5¢ previously CIMB thinks that management will enforce stringent cost cutting, aside from other cash/cost management measures. OCBC reckons Tat Hong’s performance for 2HFY14 will remain subdued as Australian operations are unlikely to produce any turnaround at least until early FY15, although other markets should cushion the declines. Tat Hong currently trades at at 10.47x trailing P/E vs its peer Tiong Woon at 8.78x Latest broker ratings as follows: OCBC: maintain Hold with TP: $0.90 (decreased from $0.96) CIMB: maintain Neutral with TP: $0.93 (decreased from $1.08)