Latest Earnings From Tat Hong Holdings Limited

Last Friday evening, Tat Hong Holdings Limited (SGX: T03) released its results for its fiscal third-quarter (the three months ended 31 December 2015).

The firm is a supplier of cranes and heavy equipment to a wide range of industries such as construction and engineering, oil and gas, and infrastructure. It prides itself as being the “largest crane rental company in the Asia-Pacific region with a fleet size of more than 1,500 crawler, mobile and tower cranes ranging from under 50 tonnes to 1,600 tonnes.” Tat Hong has operations in a number of countries including Singapore, Indonesia, China, and Australia.

Now that we have some background on the firm for context, let’s dive into its latest quarterly results.

Financial highlights

  1. Revenue for the reporting quarter saw a 19% year-on-year decrease to S$124.8 million. All segments – Crane Rental, Tower Crane Rental, General Equipment Rental, and Distribution – reported lower turnover due to weaker demand, especially from the ASEAN and Australia markets.
  2. For the quarter, Tat Hong reported a net loss of S$6.7 million. This compares with the profit of S$4.5 million seen a year ago. The quarterly loss came largely on the back of lower gross profit and net foreign exchange losses.
  3. Consequently, earnings per share for the reporting period was at a negative 1.06 Singapore cents. A year ago, this figure came in at 0.72 cents.
  4. As of 31 December 2015, Tat Hong had S$59 million in cash and equivalents but total borrowings of S$415 million. The firm’s balance sheet has strengthened from a year ago when there was S$66 million in cash and S$478 million in total debt.
  5. Free cash flow for the reporting quarter came in at S$2.1 million (S$5.9 million in operating cash flow vs. S$3.8 million in capex), as compared to the S$18.1 million (S$23.5 million in operating cash flow vs. S$5.3 million in capex) seen in the previous year.

Business highlights

As mentioned, Tat Hong has a number of business segments. This is how their revenue performances were like in the reporting quarter:

Tat Hong segment results
Source: Tat Hong’s earnings release

In the Crane Rental segment, Tat Hong had suffered from a delay in the start of new projects in Thailand, lower business activity in Australia’s mining and LNG (liquefied natural gas) sectors, lower rental and utilization rates in Malaysia, and a falling Australian dollar in relation to the Singapore dollar.

As for the Tower Crane Rental segment, lower utilisation rates (a drop from 77.2% at end-2014 to 72.2%) and the transfer of cranes to subsidiaries had played a role in the revenue decline.

Meanwhile, General Equipment Rental was “adversely impacted by competitive market conditions and increased pricing pressure.” The aforementioned depreciation of the Australian dollar had also played a part in the segment’s lower revenue.

Lastly, Distribution’s drop in revenue came on the back of “lower demand for cranes in Thailand, Vietnam and Singapore as well as lower sales of excavators in Indonesia.” In a similar manner to the other segments, Distribution had suffered from unfavourable currency swings between the Australian and Singapore dollar. Growth in used equipment and spare parts sales in Australia had helped to ease some of the negative developments in the segment.

Looking Ahead

Last August, Tat Hong has applied for its subsidiary, Tat Hong Equipment Service Co., Ltd to list, on the Taiwan Stock Exchange. The application is currently under review by the authorities and the company commented in the earnings release that “updates will be provided as and when there are any material developments.”

Roland Ng, Tat Hong’s managing director and chief executive, had given the following comments in the earning release on the firm’s future outlook:

“We expect our performance in the ASEAN region and Australia to be subdued in the near term due to the volatile currency environment, persistently low oil prices and anaemic economic growth.

However in the longer term, we are confident of the prospects for the crane rental business as economic progress and the urbanisation of rural populations will drive massive infrastructure development to bridge the current infrastructure gap in Asia. In the meantime, we will step up our ongoing Group-wide operating costs reduction exercise to make ourselves even leaner. ”

Shares of the crane rental outfit ended last Friday at S$0.415. At that price, Tat Hong’s valued at just 0.4 times its tangible book value.

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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 Sudhan P doesn’t own shares in any company mentioned.