Tat Hong Holdings Limited

[Musicwhiz]

Tat Hong will be releasing their 1H FY 2011 results on November 15, 2010 (Monday) before the stock market opens.

Note: I am vested.

[FFNow]

Tat Hong will be releasing their 1H FY 2011 results on November 15, 2010 (Monday) before the stock market opens.

Note: I am vested.

MW, I was actually thinking of researching this company. I understand that you own this stock. How is the economic moat of Tat Hong like?

[Musicwhiz]

Tat Hong's moat is strong enough as they have a huge asset base and sterling reputation. However, I must caution that the industry itself is fragmented, meaning that although Tat Hong holds pole position in terms of market share, there are many small players with cranes to rent and sell; so this may be a problem too as customers may react purely to price. Just take a look around at the MBS IR site - there are so many types of cranes, from Hiap Seng, to Tiong Woon (ok this is more at Sports Hub) to Hock Lian Seng just to name a few.

Although I had thought barriers to entry were high, apparently most people can just cough up money to buy some cranes/heavy equipment and then start a company. What they may find hard to do, however, is to get a decent customer base and consistent sales contracts, as they do not have the size, scale and therefore clout.

I had not refined my criteria as yet when I researched Tat Hong back in 2008, hence this is one of the companies which has net debt and pretty high gearing; but since I purchased at a very low valuation and they have been making good inroads into China, I am holding on to it to see how things pan out. However, I must admit this does not constitute a "value investment" based on sound principles of value.

[Musicwhiz]

Tat Hong has just released news that they will be releasing their 1H FY 2011 results on November 13, 2010 (Saturday), instead of Nov 15. The original date was obtained by me from the IR contact. Apologies for the mis-communication!

[FFNow]

Tat Hong's moat is strong enough as they have a huge asset base and sterling reputation. However, I must caution that the industry itself is fragmented, meaning that although Tat Hong holds pole position in terms of market share, there are many small players with cranes to rent and sell; so this may be a problem too as customers may react purely to price. Just take a look around at the MBS IR site - there are so many types of cranes, from Hiap Seng, to Tiong Woon (ok this is more at Sports Hub) to Hock Lian Seng just to name a few.

Although I had thought barriers to entry were high, apparently most people can just cough up money to buy some cranes/heavy equipment and then start a company. What they may find hard to do, however, is to get a decent customer base and consistent sales contracts, as they do not have the size, scale and therefore clout.

I had not refined my criteria as yet when I researched Tat Hong back in 2008, hence this is one of the companies which has net debt and pretty high gearing; but since I purchased at a very low valuation and they have been making good inroads into China, I am holding on to it to see how things pan out. However, I must admit this does not constitute a "value investment" based on sound principles of value.

Thanks MW!

[Musicwhiz]

Published November 15, 2010

Tat Hong Q2 profit rises 7% to $7.08m

By JAMIE LEE

Tat Hong Holdings has posted a 7 per cent increase in second-quarter net profit, propped up by higher sales. The crane rental firm posted a profit of $7.08 million for the three months ended Sept 30, compared with a net profit of $6.65 million a year ago.


This translates to earnings per share of 1.24 cents for the period, down from 1.32 cents a year ago. The company said that as at Sept 30, it had a contractual obligation to convert 50.66 million warrants into 50,66 million new shares.

Revenue was up 20 per cent at $146 million, thanks to stronger sales at its distribution, crane rental and tower crane rental divisions.

The distribution business, which makes up the biggest proportion of sales, was up 19 per cent at $64.4 million, on higher sales of crawler cranes.

Gross profit margin, however, fell to 37 per cent from almost 40 per cent a year ago. This is partly due to slimmer margins from the crane rental division with the scale-down of major projects in Singapore and Malaysia that commanded high premium rates, as well as lower margins from the distribution division due to competition.

Other operating expenses, the biggest expense component, surged 30 per cent to $35.9 million due to higher staff costs, an impairment for remaining goodwill associated with Kingston Industries - a subsidiary in Australia - and higher upkeep expenses for machinery and vessels in Australia.

For the half-year, Tat Hong posted a 2 per cent rise in net profit to $17.5 million, with revenue ending 22 per cent higher at $294 million.

[Musicwhiz]

Dear all, my analysis of Tat Hong's 1H FY 2011 Financials is now up on my blog. Please feel free to visit and comment, thanks!

A snippet as follows:-

"The only really bright spark was the recovery in share of profits of associates, turning around from a loss of S$371K in 1H 2010 to a profit of S$4 million in 1H 2011. This follows the recovery in the global economy (no thanks to the massive printing of money by the US Federal Reserve) and companies such as Kian Ho Bearings and Yongmao reported better results, flowing down to Tat Hong’s bottom line."

[SLC81]

In the long term this is the company has enormous potential. In the Crane business, they have the size to compete and exposure to both Australia and China.

There will be quite a number of Nuclear Power Station to be built in Asia China, India, Vietnam, Malaysia (announced) and Planned for Thailand, Indonesia in the next 20 years,

20% stake in China Crane manufacturer- Yong Mao is also somethings interesting.
In China, Tat Hong bought Cranes from Yongmao for its joint ventures to lease out.

Young Mao Cranes have been sold in Europe, Australia and US

In short, Tat Hong is the type of the companies i like

[Musicwhiz]

In the long term this is the company has enormous potential. In the Crane business, they have the size to compete and exposure to both Australia and China.

There will be quite a number of Nuclear Power Station to be built in Asia China, India, Vietnam, Malaysia (announced) and Planned for Thailand, Indonesia in the next 20 years,

20% stake in China Crane manufacturer- Yong Mao is also somethings interesting.
In China, Tat Hong bought Cranes from Yongmao for its joint ventures to lease out.

Young Mao Cranes have been sold in Europe, Australia and US

In short, Tat Hong is the type of the companies i like

Hmm, well even though I am vested I do not feel as optimistic as you do.

For China, the reason why Tat Hong say they are the dominant player in the tower crane industry is because the industry itself is very fragmented. This means there are many players using "hit and run" tactics to secure work and to provide active competition for Tat Hong. Hence, I will not think it is so easy to secure market share in China; and even if they do, margins may still suffer. Note that gross margins for tower cranes are not as high as those of crawler cranes.

While I do not deny that there will be ample parcels of work in Australia, China and South-East Asia, whether Tat Hong is able to capitalize on the boom is questionable, as there are many regional players who compete strongly with Tat Hong for business. It remains to be seen if the recovery is genuine, as Tat Hong seems to flounder.

I think we all need to monitor Tat Hong for a few more quarters in order to ascertain if the recovery is on track. AIF helped pump in money but it seems the growth for Tat Hong has yet to gain traction, yet dividends are being "shared" amongst ordinary shareholders and preference shareholders already.

[Musicwhiz]

Dear all, I have detailed my reasons and rationale for divestment in Tat Hong on my blog. Please feel free to visit and leave comments, thanks!