Small/Mid-Cap | Construction Machinery

Tat Hong Holdings Ltd

End of Tunnel Further than Expected RETAIL RESEARCH

MICA (P) 248/07/2008

HOLD (Downgraded)
16 Nov 2010

FY2011 Q2 results disappoint. Tat Hongs FY11Q2 performance came in slightly below our expectations at NPAT of SGD7.9m on SGD145.6m revenue. On a QoQ basis, the figures represented a 42.2% and 2.2% fall respectively. This is not what we expect from a company coming out of the tunnel and into the light. Then again, we have observed that such disappointments appear to be the norm rather than the exception across their industry peers in this quarter. Crane rental the only rose among thorns. Revenue for all segments, except Crane Rental, fell from the previous quarter. As the only segment that bucked the downtrend, Crane rental saw a 18.2% increase in revenue over Q1 to SGD52.7m. Management stated that rental rates and demand for cranes (especially the smaller ones below 250MT) are slowly improving. On another note, we are rather surprised by the 18.4% QoQ fall in revenue to SGD13.8m for the Tower Crane segment. Since it represents Tat Hongs foray into China, the worlds main growth engine, we would be looking out for a rebound in the remaining 2 quarters of FY11. Competition in Heavy Lift. Tutt Bryant (TBG) announced in Feb a 50:50 JV with Fagioli SpA, an Italian heavy lift and haulage specialist, to undertake heavy lift projects. This plan appears to be hampered by stiff competition from European players who are forced to venture into Asia Pacific due to the economic slowdown in their home region. Interim dividend declared. The Company announced an interim dividend of 1 SG cent for the half-year. FV lowered to S$0.94 and downgrade to Hold. In our Update Note for FY10Q4, we upgraded our recommendation for Tat Hong to Accumulate as we expected the Company to be seeing the light at the end of the tunnel. It seems now that the tunnel is longer than we expected. While we lower our revenue and profit forecasts for FY11-13, their acquisition of the remaining ~30% stake in TBG helped to make up for the difference at the net profits attributable to shareholders level. Our earnings model arrived at a slightly lower FV of S$0.94. However, since their share price has moved ahead to close at S$1.02, we downgrade our recommendation to Hold.
2009 631,761 163,119 76,685 -1.3% -24.5% 13.62 14.9% 25.8% 11,294 2010 495,356 118,115 45,532 -21.6% -40.6% 7.20 6.5% 23.8% (46,403) 2011F 597,819 137,440 42,071 20.7% -7.6% 6.50 5.4% 23.0% (65,331) 2012F 644,214 173,389 61,040 7.8% 45.1% 9.43 7.5% 26.9% 4,661 2013F 694,681 191,079 66,046 7.8% 8.2% 10.20 7.8% 27.5% 24,266

Our Recommendation

Fair Value (SGD)

Previous FV (SGD): Last close price (SGD) Holding period

0.94
0.98 1.02 12 months

Company & Stock Data Market cap (SGD Mil) 12-mth trailing P/E Price-to-book 12-mth Dividend yield 52-wk high 52-wk low 30D average volume 30D average value Free float Beta 506.6 14.9x 1.1x 2.5% 1.11 0.85 306K 321K 33.1% 0.98
Source: Bloomberg

Share Price relative to STI (1-Year)

Tat Hong STI

Source: Bloomberg

Winston Peak, MSc winstonpeak@amfraser.com.sg +65 6236 2389

Revenue EBITDA Net Profit Rev Growth Net Profit Growth EPS (SGD cts) ROE EBITDA Margin Free Cashflow

Please see important disclosures at the end of this publication

AmFraser Securities Pte Ltd

INCOME STATEMENT
In SGD '000 Revenue Cost of Sales Gross Profit Interest Income Other Operating Income Total Operating Income Operating Expenses Operating Profit/(loss) Interest (expense) Other non-op income/ (exp) Profit Before Tax Less: Income tax exp/ (credit) Profit after tax Less: Minority Interest Net Profit/(loss) att to ord. S/H EBITDA Free Cashflow EPS (SGD cts) Adjusted 31-Mar-09 631,761 390,622 241,139 1,546 13,047 255,732 135,561 120,171 (12,352) (10,364) 97,455 20,770 76,685 7,796 68,889 163,119 11,294 13.62 Adjusted 31-Mar-10 495,356 304,462 190,894 710 6,155 197,759 128,870 68,889 (15,585) 4,990 58,294 12,762 45,532 6,930 38,602 118,115 (46,403) 7.20 Forecast 31-Mar-11 597,819 376,626 221,193 774 10,761 232,727 162,512 70,216 (17,848) 2,989 55,357 13,286 42,071 5,049 37,023 137,440 (65,331) 6.50 Forecast 31-Mar-12

Tat Hong Holdings Ltd

Forecast 31-Mar-13 694,681 430,702 263,979 1,745 11,115 276,838 173,110 103,728 (20,299) 3,473 86,902 20,857 66,046 7,925 58,120 191,079 24,266 10.20

644,214 399,413 244,801 1,619 10,307 256,727 160,453 96,275 (19,181) 3,221 80,315 19,276 61,040 7,325 53,715 173,389 4,661 9.43

BALANCE SHEET
In SGD '000 Cash & cash equivalents Trade and Other Rec Inventory Property, plant & equip (net) Other Assets Total Assets Trade Payables Borrowings Other Liabilities Preferred Stock Common Equity Total Liabilities and Equity 461,892 886,434 Adjusted 31-Mar-09 46,280 97,725 217,686 385,741 139,002 886,434 89,032 266,822 68,688 593,343 1,040,805 Adjusted 31-Mar-10 76,647 112,715 200,997 520,335 130,111 1,040,805 68,021 298,415 81,026 Forecast 31-Mar-11 77,716 128,394 249,555 582,592 128,186 1,166,444 94,992 317,044 73,852 65,000 615,557 1,166,444 Forecast 31-Mar-12 83,748 128,960 256,399 629,101 128,186 1,226,394 90,763 344,354 78,491 65,000 647,785 1,226,394 Forecast 31-Mar-13 90,308 138,111 256,801 669,713 128,186 1,283,120 96,315 355,610 83,538 65,000 682,658 1,283,120

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AmFraser Securities Pte Ltd

CASHFLOW STATEMENT
In SGD '000 Profit before Tax Write-back Depreciation Write-back Amortisation Interest income Interest expense Other non-cash adjustments Change in working capital Income taxes paid Other operating items Cashflow from Operations (Purchase) / Disposal of PPE Interest received Debt raised / (repaid) Proceeds from CRPS issue Interest paid Beginning Cash Ending Cash Adjusted 31-Mar-09 97,455 41,842 1,106 (1,546) 12,352 (10,655) (97,379) (30,982) (3,416) 8,777 (28,835) 1,554 26,625 (12,295) 75,442 46,280 Adjusted 31-Mar-09 38.2% 25.8% 15.1% 12.1% 14.9% 8.7% Adjusted 31-Mar-10 58,294 48,205 1,021 (710) 15,585 (2,518) (69,917) (16,660) (3,999) 29,301 (79,519) 712 13,408 63,738 (15,457) 46,280 76,647 Adjusted 31-Mar-10 38.5% 23.8% 11.6% 9.2% 6.5% 4.4% 24,932 (87,471) 774 18,629 (17,848) 76,647 77,716 17,848 (101,438) (13,286) Forecast 31-Mar-11 55,357 67,224 (774) Forecast 31-Mar-12

Tat Hong Holdings Ltd

Forecast 31-Mar-13 86,902 87,351 (1,619) 19,181 (56,999) (19,276) 98,717 (91,844) 1,619 27,310 (19,181) 77,716 83,748 122,996 (96,437) 1,745 11,256 (20,299) 83,748 90,308 20,299 (48,955) (20,857) (1,745)

80,315 77,114

FINANCIAL RATIOS Profitability Gross Profit Margin EBITDA Margin Pre-tax Income to Op Rev Ratio Net Profit Margin ROE ROA Growth (Y-o-Y) Revenue EBITDA Pre-tax Income Net Income Financial Structure Networth Ratio Debt-to-equity Ratio Operational Efficiency Acc Rec T/O (days) Acc Payable T/O (days) Inv T/O (days) Cash Conversion Cycle (days)

Forecast 31-Mar-11 37.0% 23.0% 9.1% 7.0% 5.4% 3.6%

Forecast 31-Mar-12 38.0% 26.9% 12.2% 9.5% 7.5% 5.0%

Forecast 31-Mar-13 38.0% 27.5% 12.3% 9.5% 7.8% 5.1%

-1.3% -3.3% -26.0% -24.5%

-21.6% -27.6% -40.2% -40.6%

20.7% 16.4% -5.0% -7.6%

7.8% 26.2% 45.1% 45.1%

7.8% 10.2% 8.2% 8.2%

52.1% 57.8%

57.0% 50.3%

58.3% 46.6%

58.1% 48.3%

58.3% 47.6%

43 83 203 164

59 82 241 219

55 92 242 205

50 83 234 201

50 82 218 186

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AmFraser Securities Pte Ltd

Tat Hong Holdings Ltd

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