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What Investors Should Know about Tat Hong’s Latest Full-Year Earnings

Tat Hong Holdings (SGX: T03) is one of the largest crane and general equipment suppliers in the Asia-Pacific region. It focuses on providing heavy lifting and crane services for the construction and offshore marine sectors in markets that include Southeast Asia, Greater China and Australia.

The company announced its full-year earnings last Thursday, so let’s see how it fared.

Operating results

For the financial year ended 31 March 2014 (FY2014), Tat Hong saw its revenue drop by 18% year-on-year to S$684.1 million.

Businesses across all its segments – these include Crane Rental; Tower crane rental; General equipment rental; and Distribution – except the Tower crane division saw a contraction in revenue. The Tower crane rental business actually experienced a 21% increase in revenue to S$89.8 million for the year, mainly due to better utilisation rates and a larger fleet; those tower cranes are predominantly used for projects in China at the moment.

Moving on, Tat Hong’s gross profit margin was also affected in most of its business segments, resulting in the company’s overall gross margin declining from 37.6% to 35.9%.

The decrease in gross margin trickled down to Tat Hong’s bottom-line, leading to a net profit margin of only 4.8% as compared to 8.4% a year ago. All told, the company ended the year with a 53.4% decline in its net profit to only S$32.8 million. Some other big culprits, in addition to the afore-mentioned factors, include higher staff costs and losses due to unfavourable currency swings.

Part of the reason for the company’s difficulties in the year that were just mentioned had stemmed from poor performances in markets such as Australia and Indonesia; both saw huge decline in profits and even losses in some subsidiaries. Australia is still Tat Hong’s most important geographical market as it accounts for 44% of the company’s overall revenue. The next biggest contributor is China at 13.1%.

Tat Hong finished the year with a net gearing of 87%, which has increased from 71% a year ago. It has a net asset value of S$1.05 per share.

Going forward

Tat Hong is expecting a turnaround in its Crane ental business as there is a ”good pipeline of large infrastructure and oil and gas projects in many of its markets”. The tower crane rental division should also carry on growing as it has favourable tailwinds in the form of continued infrastructure spending in China. The company’s distribution arm on the other hand, might face more challenges in the future due to a slowdown in the Australian economy and generally weak demand for heavy equipment in the region.

Foolish Summary

Tat Hong is currently trading at S$0.84 per share, a long way down from its peak of S$1.57 that was reached in early 2013. The company had recommended a final dividend of S$0.01 per share, bringing the total dividend for the year to S$0.02.That is a 50% decrease from last year’s dividend of S$0.04 per share.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.