Here's why Tat Holdings will remain bullish this year

Crane fleet expansion to fuel 65% estimated jump in profits.

According to OCBC Investment Research, Tat Hong’s PATMI grew by 63% to S$42m in FY12 and is expected to increase by a further 65% to S$70m in FY13F.

OCBC notes that the sharp improvements were mainly due to improved crane utilization and higher charter rates. IWith current crane utilization at around 70% levels, OCBC thinks that FY14-15F PATMI growth will moderate to around 10-30%, mainly driven by crane fleet expansion. On this point, we note that Tat Hong had completed a share placement of S$82m (in Sep-2012), half of which was earmarked for fleet expansion.

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On this point, we note that Tat Hong had completed a share placement of S$82m (in Sep-2012), half of which was earmarked for fleet expansion.

Robust crane demand. Demand for cranes is expected to remain strong over the medium term, supported by the roll-out of various infrastructure projects
across the region. In Singapore, the government announced plans to build 700,000 new homes and to double the rail network length to 360km by 2030.

Other major projects include the SLNG Plant on Jurong Island, the North-South Expressway and the Ophir-Rocher mixed development. In Hong Kong, major projects such as the Central-Wan Chai Bypass, GuangzhouShenzhen-Hong Kong XRL and Shatin-Central Link continue to come on-stream in the next few years.

Infrastructure developments in Malaysia and Thailand are also expected to remain strong, underpinned by a number of oil & gas and MRT projects. Given such robust activity, we expect Tat Hong to add about 50+ cranes per year and its crane utilization rate to rise to around 75% for FY14-15F (Dec 12: 71%).

Maintain BUY with S$1.75 fair value. We remain positive on the group’s outlook over the medium term and keep our BUY rating and S$1.75 fair value estimate unchanged. Risks to our projection include (i) a sharp slowdown in its Australia business and (ii) unexpected delays in Chinese infrastructure projects.

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