Fair value S$1.21
Hong Kong to ramp up construction of new flats
According to media reports1, the Hong Kong government – led by new chief executive Leong Chun Ying – is considering a proposal to ramp up the number of new flats to 50,000 a year over a two to three year period. This far exceeds the 18,000 flats built in the last fiscal year ending Mar 2012 and the target of 35,000 flats a year set by the previous Donald Tsang-led government. Although the new proposal would benefit Hong Kong residents looking for affordable housing, some developers fear such a steep ramp up would lead to plummeting prices. If the proposed plan is passed in parliament, the resulting surge in the territory’s crane demand should benefit Tat Hong Holdings, which has one of the largest crane fleet in Asia.
Strong infrastructure activities in ASEAN
Even without the proposal to ramp-up the building of new flats, Hong Kong is already experiencing a strong pickup in construction activity, driven by a number of large infrastructure projects. In the 2012/13 Budget, the Hong Kong government expects annual actual expenditure to triple to HKD62.3b in 2012/13, from HKD20.5b in 2007/08 and further increase to over HKD70b per year over the next few years. Outside of Hong Kong, ASEAN countries are also expecting a high and sustained level of construction activities in Singapore (Downtown Line, Ophir-Rochor) and Malaysia (Iskandar Malaysia).
Turnaround in China and Australia
Tat Hong’s Australia operations are expected to recover strongly in FY13F, driven by post-disaster reconstruction activities. In China, the group has restructured its operations and is now better positioned for future growth. We are optimistic of Tat Hong’s near and medium term outlook. Maintain BUY with an unchanged S$1.21 fair value estimate.
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