2013 will be another good year. We maintain our view that Tat Hong is still in the middle of a multi-year growth cycle and 2013 will turn out to be another good year. Supported by growth in most of the markets it operates in, we expect utilisation and rental rates to continue to climb while group ROE is expected to recover to above 10% from the low of 4.5% in FY3/11. Tat Hong remains a conviction BUY in 2013. Australian energy sector to fuel growth.
Australia’s energy sector will be a major revenue driver. With new gas discoveries in North and West Australia, it is reasonable to expect the domestic LNG boom to last a few more years. Tat Hong will be a major beneficiary of this boom as it has been involved in Australia’s energy sector for many years and has forged cordial long-term relationships with many O&M companies. We expect such ties and Tat Hong’s good reputation to help secure meaningful contracts in the LNG space in 2013.
Regional infrastructure development remains in high gear. Many countries in the Asia Pacific are banking on infrastructure construction to pull their economies out of the doldrums. We believe that spending by the regional governments will remain high in the foreseeable future, thereby underscoring demand for Tat Hong’s equipments.
Additional growth could come from M&A in 2013. With sufficient cash in hand following the
placement last year and buoyant demand for cranes, it makes sense for Tat Hong to make some meaningful M&A’s to speed up growth. We believe that such activities should be appreciated by shareholders because of the favorable valuation gap between Tat Hong and potential M&A target companies.
Investment theme and valuation. We continue to like Tat Hong’s multi-year growth story and reiterate our BUY call on the stock. For a company with a prospective EPS growth rate of 30% over the next three years, its current valuation of 11.9x FY3/14F PER is hardly expensive. We maintain our target price of SGD1.78, pegged to 14.5x FY3/14 PER.
Industry outlook for 2013. We continue to believe 2013 will be another good year for the crane rental industry in Asia Pacific. For Tat Hong in particular, the revenue drivers are mainly LNG sector in Australia and infrastructure construction in ASEAN.
In Australia, with more LNG resources discovered in North and West part, we believe the current LNG boom will last for many more years. Tat Hong is currently involving in some large Oil & Gas projects such as the Gorgon project in Australia. With more big-scale projects coming in, such as the LNG project in Darwin, we expect more contract wins for Tat Hong Australia. In our view Australia’s LNG boom will not only benefit Australia crane rental industry alone but also other nearby areas because some of the projects are too big so that they need to outsource some fabrication works to other countries. In addition, unlike normal crane rental contracts which are relatively short-term (on average 6 months), LNG projects usually can last many years. Once those contracts start, they can support revenue growth for multiple years.
In other regional areas, we believe that infrastructure spending by the regional governments will remain high in the foreseeable future, thereby underscoring demand for Tat Hong’s equipments. For example, the construction on Jurong Island and MRT projects in Singapore, Oil&Gas projects and other infrastructure activities in Malaysia as well as flood barricade construction should increasingly contribute to group revenue. The recent flood in Indonesia will also add demand for Tat Hong’s equipments.
Sustainable competitive advantage against peers. As a market leader, Tat Hong’s large fleet size, wide range of products and services and good track record enable the company to enjoy sustainable pricing advantage against peers. This pricing advantage is even more obvious in the high-tonnage crane space. As the biggest crane rental company in Asia, we don’t see any competitors that can compare in size to Tat Hong.
Additional growth could come from M&A in 2013. With sufficient cash in hand following the placement last year and buoyant demand for cranes, it makes sense for Tat Hong to make some meaningful M&A’s to speed up growth. Tat Hong is now trading at 13.9x FY3/13 PER while the acquisition cost for unlisted companies in this industry is most likely within single digit PER range. Thus such potential M&A activities should be appreciated by shareholders because of the favorable valuation gap between Tat Hong and potential M&A target companies.
Valuation and recommendation. We continue to like Tat Hong’s multi-year growth story and reiterate our BUY call on the stock. For a company with a prospective EPS growth rate of 30% over the next three years, its current valuation of 11.9x FY3/14F PER is hardly expensive. We believe investors will be buying into its ROE up-cycle as Tat Hong enjoys operating leverage over the next 3-5 years. We maintain our target price of SGD1.78, pegged to 14.5x FY3/14 PER.
No comments:
Post a Comment