Tat Hong's share price rockets by over 67%

Crane rental business is alive and kicking again.

According to OCBC, Tat Hong Holdings’ share price soared by more than 67% since we last upgraded the counter about a year ago, outperforming STI’s 19% return over the same period.

The sharp run-up was mainly due to a strong recovery in the crane rental business. Looking ahead, we believe the group will continue to grow on the back of higher rental rates and larger crane fleet size.

Tat Hong is currently enjoying high utilization rates (>70%) for both its Crane Rental and Tower Crane businesses. To meet the strong demand for cranes, it has
earmarked about S$40m (from the recent S$82m placement) to purchase new cranes.

Here's more from OCBC:

In addition, rental rates may increase given the tightness in the current crane market.

We queried Tat Hong on the impact of the recent Australia fires. Although we expect some short-term disruption to its business, management believes that the resulting demand for general equipment may increase, as they are needed to clear the debris in its aftermath.

A comparison with the massive Queensland flooding in Dec 2010/Jan 2011 may be illustrative. After deducting for insurance claims, Tat Hong incurred about S$6m  in flood-related losses in FY11.

However, post-disaster reconstruction activities led to sharp improvements in its General Equipment Rental (Pretax profit +201% YoY to S$15.9m) and Distribution (Pretax profit +55% YoY to S$35m) businesses last year.

Meanwhile, we note that its China operations may surprise the market on the upside. Tat Hong has a sizeable operation in the country with a fleet size of 784
tower cranes (versus 757 crawler/mobile cranes in the rest of Asia) but has underperformed due to issues with its JV partners.

Having restructured its China operations, we believe it is now better positioned to ride on the expected recovery in China’s economy.