It has been sometimes since I reviewed the performance of Tat Hong and I was shocked to find out that the stock had plummeted to almost a five year low. The stock is currently trading at $0.52, barely above the $0.49 recorded in September 2015.
For a company that prides itself as the largest crane company in Asia Pacific and seventh worldwide, its recent stock price indicates that all is not well for Tat Hong.
In the 2015 annual report, the revenue declined 11% to S$608.6 million whilst operating profit (excluding impairment charges) remained flat at S$35.7 million comparable to the net profit achieved in FY2014. Profit after tax and minority interests (PATMI) dipped 85% to S$4.9 million due to non-cash goodwill and asset impairment charges of S$30.8 million taken by the Group’s Australian subsidiaries. One reason for Tat Hong’s terrible performance could be that its business is too concentrated in Australia and Singapore markets, which together accounted for 60% of the Group’s business. Thus, any headwind in these markets can spell big trouble for the company.
Perhaps another tell-tale signs that a company is not doing well is that it is selling its assets. In 2015, Tat Hong disposed its properties in Australia, equipment as well as selling off several “non-core subsidiaries”, Hup Hin Transport and Tat Hong Flo-Line, and an associate, Kian Ho Bearings. In total, the Group realised proceeds of S$89.1 million from its divestment programme. Whilst this streamlining initiative can help to unlock value for Tat Hong, it also underlies the notion that the company is downsizing its moat. After all, these assets were acquired in the good old days when Tat Hong was growing. Now that the company is experiencing rough patch, it would seem strange that these acquisitions became …Read more