Tat Hong Holdings’ revenue jumps 26% to S$183m in 2Q11

2Q results in line. Tat Hong Holdings Ltd reported a 26% YoY increase in revenue to S$183m and a 80% rise in net profit to S$14m in 2Q12, such that 1H net profit accounted for 55% of our FY12 estimates. Gross margin remained flat at 37.1% in 2Q12 (2Q11: 37.0%). The only disappointment was the S$1.3m losses from its joint-ventures, which management explained as a one-off impairment charge of a certain JV asset.

TAT also proposed a one cent interim dividend, representing about 31% of 1H PATMI.

Broad based improvements. The group saw revenue increases across all its segments: distribution (38% increase YoY), crane rental (+1%), general equipment rental (+77%) and tower crane rental (+7%).

On sequential quarters, the first three above-mentioned segments reported 10-23% increases in revenue, while tower crane rental revenues remained flat. 2Q utilization rates expanded to 67.9% (1Q12: 60.4%) for its crawler/mobile fleet, and 70.9% for its tower crane fleet (1Q12: 66.0%). Despite the volume growth, we do not expect rental rates to increase substantially in view of the keen competition and a general over-supply of cranes in the region.

Operating conditions bottoming out? Management was 'gratified' with the recent results and expects to do better in FY12 than in FY11, barring any unforeseen circumstances or major setbacks. We share the management's optimism but remain cautious on the timing of the recovery. The group's Australia operations, which accounted for more than half of total revenue, have not yet shown firm signs of a recovery.

Although sales activity has picked up, crane rental activity in Australia remained subdued. On this point, we note that a number of TAT's cranes were off hire in the recent quarter due to slower-than-expected project starts.