Tat Hong Holdings Limited - What acquisitions are in the pipeline?

26/3/2013 - Brokers continue to like Tat Hong’s growth story, after it reported mixed results in Q3.

Tat Hong, one of the Asia-Pacific’s largest crane-owning company, expects its crane rental division to maintain its momentum in Q4 FY13.

This is because the outlook for key Southeast Asia markets and Hong Kong remains encouraging.

Its operations in Australia will continue to benefit from committed and new project starts, especially in the oil and gas sector.

It expects Singapore operations to remain stable but overall performance could be affected by weaker demand in Australia.

The general equipment rental division’s performance could be impacted by subdued activities in Australia due to severe weather conditions in some states, and flooding in Queensland.

The tower crane rental division in China is expected to maintain its growth momentum.

The company just announced earnings for Q3 FY13:

Revenue: +5% to S$206.1 mln
Gross profit: +9.6% to S$74 mln
Gross margin: 35.9% vs 34.4%
Profit: +36.9% to S$17.8 mln
Cash flow from operations: S$12.5 mln vs S$22.1 mln

The two rental divisions grew, but the distribution and general equipment divisions were weaker.

Gross margins increased slightly due to higher contribution from crane rental and tower rental segments.

Profit surged mainly due to higher gains from the disposal of assets and foreign exchange gains.

Maybank Research reiterated its BUY call and target price of S$1.78.

OCBC Research also maintained its BUY rating with a target price of S$1.70.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. What acquisitions are in the pipeline?

With sufficient cash in hand following the placement last year and buoyant demand for cranes, it makes sense for Tat Hong to make some meaningful acquisitions to speed up growth.

So, which ones is it considering, and when can we expect an announcement?

Question

2. Can we expect higher utilization in Q4?

Crawler crane utilisation still stayed at a high level of 71% in Q3 FY13.

Although slightly lower than 72.5% in the last quarter, Maybank Research expects utilization to edge higher as contracts in the pipeline, especially those related to LNG projects in Australia, kick in.

So, what utilisation rates can we expect?

Question

3. Is tower crane rental expected to be a major contributor to revenue in the future?

While this is the smallest contributor to the group, it is proving to be the star.

Evident in this set of results is the improved utilisation of an expanded fleet arising from participation in infrastructural, power plant, power station and large commercial projects.

Management expects this division in China to keep up its growth momentum as it continues to participate in more localised and sizeable infrastructure projects.

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

Sofar, we have not had a reply (which is why you are seeing this message).

Sources & further information

Sources

Statutory disclosure
Press release
Presentation materials
CIMB Research Report
OCBC Research Report
Maybank Research report

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