Tat Hong Holdings to slow down fleet expansion

Will focus instead on crane productivity.

Tat Hong Holdings will also shift its attention to reducing operating costs through the use of its new yard in Iskandar, which for OCBC Investment Research could mean more a modest PATMI growth rate of about 10% but also improved cashflow that could "bring its gearing level to a more sustainable level."

Here's more from OCBC:

FY13 within expectations. Tat Hong reported revenue and net profit to shareholders of S$837m (+16%) and S$70m (+67%) respectively for FY13. The results were in line with ours and the street’s estimates. Gross profit margin improved to 37.6% for FY13 (FY12: 36.5%) due to greater contribution from the higher-margin Crane Rental and Tower Crane businesses.The group also recorded a disposal gain of S$9.3m and wrote off inventory and trade receivables worth S$6.0m in the last financial year. It proposed a final dividend of 2.5 S cts, bringing its total dividend to 4.0 S cts for FY13 (FY12: 2.5 S cts).

Healthy level of infrastructure activities. Revenue for the Crane Rental segment jumped 37% to S$307m in FY13, driven by strong crane demand in its key markets (Singapore, Malaysia, Hong Kong, etc). The China Tower Crane Rental posted a 27% increase in revenue to S$75m due to improved utilization on a larger fleet. Revenue growth for Distribution was more modest at 7% (to S$362m), attributable mainly to higher sales in Singapore, Thailand and Indonesia; but partially offset by weakness in Australia. The only laggard was the General Equipment division, which suffered a 4% contraction resulting from more subdued activities in Australia.

Digesting its fleet expansion. The outlook for its key markets remains positive, underpinned by a number of infrastructure projects. However, management believes it is time to slow down its fleet expansion, after a 79% surge in fleet tonnage in the past 5 years. It will now focus on raising its crane productivity, and reducing operating costs through the use of its new yard in Iskandar. Although this may mean more a modest PATMI growth rate of about 10%, the improving cashflow would also bring its gearing level to a more sustainable level. Maintain BUY with unchanged S$1.75 fair value estimate.