1 Stock That Has Trounced the Straits Times Index Handsomely This Week

Shares of Tat Hong Holdings Limited (SGX: T03) ballooned 23.7% on high volume to close at S$0.47 for the week. In comparison, the Straits Times Index (SGX: ^STI) was up by only 0.3% during the same time frame.

Tat Hong is a supplier of cranes and heavy equipment to a wide range of industries such as construction and engineering, oil and gas, and infrastructure.

In terms of aggregate tonnage, it is the largest crane-owning company in the Asia-Pacific region and eighth worldwide. It also owns the second largest tower crane fleet in China.

The company currently has operations in Singapore, Australia, China, Malaysia, Thailand, Indonesia, Hong Kong, Vietnam, Myanmar and Papua New Guinea.

What might have caused the pop

On Thursday this week, it announced that it “has been approached by certain parties in connection with a potential transaction in relation to the securities of the Company”.

It added that the “discussions are ongoing and there is no certainty or assurance whatsoever that any transaction will arise from these discussions”.

It had appointed Rippledot Capital Advisers Pte Ltd as its financial adviser in connection with the approaches.

Loss-making for the past two years

Tat Hong has been losing money for the past two financial years ended 31 March 2016 (FY2016) and FY2017.

For FY2016, the firm saw a net loss of S$39.3 million while in FY2017, the net loss was slightly lesser at S$38 million.

Total revenue declined 13% year-on-year to S$458.3 million in FY2017 due to weaker revenue from its Crane Rental and Distribution divisions, partially offset by higher contributions by the Tower Crane Rental and General Equipment Rental segments.

Mr Roland Ng, Managing Director and Group Chief Executive Officer of Tat Hong, commented on the company’s performance for the year:

“Despite our weak performance in FY2017, the Group remains fundamentally strong with healthy cash flows from operations and a much deleveraged balance sheet. We have continued with our cost containment efforts to emerge a trimmer and more nimble Group that can respond faster to market opportunities. The Group is also beginning to see initial results of its earlier efforts to use its strong China presence to participate in China’s One Belt, One Road initiative.”

A Foolish takeaway

Some investors might have ridden on the rally this morning, after the trading halt was lifted, purely based on the announcement. Such purchases are speculative in nature, without consideration of the business performance.

Stocks are not mere pieces of paper; they represent ownership in businesses. As such, whenever we buy a stock, we should research thoroughly on the fundamentals of the business and determine if the company can grow for the long-term.

As for Tat Hong, it is best to wait and see what the “potential transaction” entails.

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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 companies mentioned.