Tat Hong Holdings Limited

[lonewolf]

Hi MW

Just a suggestion. I know you want traffic to your blog but it really does not hurt to post a summary of the reasons for your decisions to dispose of Tat Hong.

It will facilitate discussions and comments without people having to visit yr blog (which I do but not everyone may be inclined to do so).

[Musicwhiz]

Hi lonewolf,

Noted with thanks. Will do so for future posts.

[SLC81]

Hi MSW, Its good to know that you've had timely exited on Tat Hong.

[Nick]

Hi MW,

I appreciate the time you had taken to pen (or type) the reasons for the divestment as well as the lessons learned. I guess capex alone wasn't a strong enough moat in this case.

Cheers

[Musicwhiz]

Hi SLC81,

Thanks. My exit was due to the aforementioned reasons as stated in my blog, whereby I had identified a permanent and pervasive deterioration in the landscape for the Company, and possibly an impairment in their ability to compete effectively. The sale was justified on such grounds, as well as high capex and absence of free cash flows. I did not mean to time my exit, and though I was caught off guard by the plunge in the share price over the last few days, I guess a part of me was not too surprised as my analysis had thrown up many red flags over and over again. I have no regrets divesting myself of this investment.

Hi Nick,

You are welcome. I am also hoping that by writing down my thoughts, I can properly understand the mistake and avoid it in future. Writing also helps me to crystallize my thoughts better and makes my thinking clearer (and hopefully more objective haha). Capex turned out to be a negative rather than a positive, similar, in effect, to the mistake made in Ezra Holdings Limited.

[cif5000]

I had identified a permanent and pervasive deterioration in the landscape for the Company, and possibly an impairment in their ability to compete effectively.

May I know what that is? The environment or the company? Thank you.

[Musicwhiz]

The environment. It was mentioned that competition was a lot more intense and the numbers (i.e. gross margins) showed this as well. I had been aware all this time that the industry was fragmented with many smaller players but did not expect them to exert such pricing pressure on a major incumbent player. So obviously Tat Hong, in spite of its size and clout, could not effectively deal with said threats to their business dominance.

As for the company, it has always been using more cash than it generates and the Balance Sheet always had a lot of debt. As mentioned, I was either too blind or too stubborn to see it. Probably both.

[Nick]

INVESTIGATION ON AN EX-GENERAL MANAGER OF A JOINT VENTURE SUBSIDIARY IN THE PEOPLE’S REPUBLIC OF CHINA

http://info.sgx.com/webcoranncatth.nsf/V...50033C2AF/$file/JSZHSHQ280211.pdf?openelement

[Musicwhiz]

Business Times - 27 May 2011

Tat Hong Q4 profit plunges 61% on margins

By FELDA CHAY

CRANE company Tat Hong Holdings saw a 61 per cent fall in net profit for its fourth quarter from a year ago on lower margins for most of its divisions.

Earnings for the three months ended March 31 fell to $3.8 million from $9.8 million a year ago.

In turn, earnings per share fell to 0.67 cent from 1.72 cents. The drop comes despite a jump in sales, which rose 17 per cent to $152.7 million.

Tat Hong said it expects margins to remain tight in view of increasing competition from overseas players who are attracted to the region - which has a strong pipeline of infrastructure and oil and gas projects.

Still, 'barring any unforeseen circumstances or major setbacks impacting the improving regional market outlook, the group expects to remain profitable in FY2012', said the company.

For the full-year, net profit fell 33 per cent to $26 million, bringing earnings per share to 4.56 cents. Last year, earnings per share were 7.2 cents.

Revenue climbed 18 per cent to $584.2 million.

As at March 31, Tat Hong held cash and cash equivalents of $54 million, compared to $69 million a year ago. Net asset value per share was 91 cents, compared with 88 cents last year. The company has proposed a final dividend of 0.5 cent per share, down from 1.5 cents last year. Yesterday, Tat Hong's shares fell 1.5 cents to 84 cents.

(Not Vested)

[Musicwhiz]

There's an article in today's TODAY newspaper on Roland Ng from Tat Hong (see attached). I find it interesting that he should comment that Ta Hong is "undervalued" just because it has assets worth $1 billion. One should also look at margins, earnings and cash-flow generation in order to value a business, and not just the asset value on its Balance Sheet. Then again, I guess all CEOs will think their businesses are undervalued?

(Not Vested)