Tat Hong Trading At Very Cheap Valuation - Citi

STOCK CALL: Tat Hong (T03.SG) is trading at very cheap valuations after falling 34% year-to-date, underperforming STI''s 9% year-to-date fall, Citigroup says. "Tat Hong is trading at 11X CY08E PER, close to the industry''s 10X, which we think is unjustified given Tat Hong''s superior earnings growth, scale of operations, experienced management, and clearly outlined growth strategy." Keeps at Buy, raises target price to S$3.25 from S$3.15. Raises FY09E-FY10E estimates by 6%-8% to take into account higher associate contributions and better-than-expected FY08 results; FY08 recurring net profit +83% at S$85 million. "On the back of tight supply of heavy equipment from manufacturers, along with healthy demand from customers, the group has been able to raise its rental rates and improve earnings." Share flat at S$2.25.


Tat Hong 4Q and FY07 results.
TAT Hong Holdings' net profit for the fourth quarter ended March 31 dropped 32 per cent to $28.4 million from the previous corresponding quarter's $41.7 million. The fall reflected a one-off gain of $32 million the crane giant made on the disposal of its stake in construction specialist CSC Holdings during the final quarter of FY07.

Despite the fourth-quarter earnings fall, Tat Hong posted record results for the year ended March 2008, with net earnings rising 14 per cent to $89.8 million on rising rental and utilisation rates and strong contributions from acquisitions. Full-year earnings per share rose to 17.73 cents from the preceding year's 17.13 cents.

Gross profit surged 67 per cent to $249.7 million. Profit before minority interests was up 21 per cent to $101.5 million. This was on a 33 per cent rise in revenue to $639.9 million, from $482.5 million in FY07.

The strong showing was due to contributions from acquisitions in the past year, rising crane rental rates as a supply crunch intensified and higher utilisation rates in key markets that now include the Middle East.

As a result, gross margin widened to 39 per cent, from 30.9 per cent previously.