15.08.2017

Slight improvement at Tat Hong

Singapore based crane and equipment rental company Tat Hong has reported improved first quarter results.

Their publication follows a profit warning issued earlier this month. Total revenues were one percent higher at s$118.3 million ($86.6 million), made up as follows:

Crane rental – mobile cranes - revenue were 17 percent lower at S$31.3 million ($23 million), due to lower rental rates in Singapore and lower activity levels in Batam, Indonesia, along with project completions in Hong Kong, partly offset by improved utilisation rates in Malaysia and Australia.

Tower Crane Rental – entirely Chinese - improved eight percent to S$26.5 million ($19.4 million) a greater number of larger cranes on rent and an enlarged fleet. In local currency revenues were 10 percent higher.

General Equipment Rental revenues jumped 25 percent, to S$14 million ($10.2 million),mainly due to improved utilisation rates.

The Distribution division saw a seven percent rise in sales to S$46.5 million ($34 million), mainly due to higher machine and parts sales in Australia, partially offset by lower demand for cranes in Singapore, Hong Kong, the Middle East and Japan.

Pre-tax losses were marginally reduced from a loss of S$3.8 million ($2.8 million) last year to a negative S$3.3 million ($2.4 million) this year. Lower margins from both crane rental operations, were offset by an improved contribution from general rental and the Australian distribution business.

A statement from the company said: “While the group anticipates continued challenging trading conditions in the ASEAN countries, it expects continued healthy demand in the China, and is cautiously optimistic of improving market and economic outlooks in Australia.”

“The market weakness and competitive pricing pressures in the ASEAN countries will continue to impact the Crane Rental division. On the other hand, the group has experienced early signs of improved market sentiments in Australia.”

“The Tower Crane Rental division in China is expected to perform well on the back of a strong pipeline of committed projects in the building, infrastructure, transport and power generation sectors.”

“The increase in infrastructure spending in Australia is expected to lift revenues from the General Equipment Rental division there, but continued weakness in the heavy equipment market is expected in the ASEAN countries.”

Vertikal Comment

Given the earlier profit - or should that be the loss - warning of two weeks ago, these numbers are not too bad. What is significant is that the Australian operations, which had been through very rough times, do appear to be recovering quite rapidly. The Chinese tower crane business continues to do well and looks quite positive. But all this is let down by a shrinking mobile – mainly crawler – crane rental business and challenges in the some of the more exotic areas the company works in, on top of slower activity in the key markets of Hong Kong and Singapore.

Tat Hong’s operations are so complicated and widely spread across Asia and Oceania that it is hard to know how much better China and Australia need to be to compensate for the rest of the business.

The company has many excellent long term opportunities and it could be said that much of what it is doing in developing markets is an investment in the longer term future. However you cannot help but get the feel that the company manages the business on a more short term basis, as do many publicly quoted corporations. Perhaps it would benefit from a complete strategic review of its operations, or going private?