For their total fleet profile, it can be seen that they are slowly increasing their total units as well as total tonnage. Their fleet of higher tonnage cranes has increased significantly over the years, as I believe this category of cranes command better rental rates, though there has also been a sizeable increase in the lower tonnage category as these cranes are used for more general purpose work (i.e. not specialized). However, one negative observation is that utilization level has been steadily falling since 2007 (the year the sub-prime problems broke out and led to the sharp recession). Utilization hit a high of 83.5% as at June 30, 2007 and has declined till the current 65.3%. For FY 2010, I would expect utilization levels to fall even further (though probably not below 60%) as the recession is still ongoing and there is no let-up in sight.
Tat Hong is still active in the oil and gas sector in Australia and the mining sector in Indonesia, and is increasing their presence in China through their tower cranes segment. Even if utilization levels remain steady, utilization rates may fall as customers negotiate for lower fees amid the downturn. Roland Ng, who is the CEO of Tat Hong, projected a 5-10% fall in utilization rates for FY 2010. Thus, the effects of the drop in utilizaton levels and rates may cause continual depression of earnings for Tat Hong, though the shift in sales mix as discussed in the previous part 2 should mean that there will be a cushion for gross margins (and hence gross profits). Rental profits will make up a larger portion of the pie but the pie itself will shrink due to less business being available to the Company in the near-term. In the medium-term though, I expect the situation to be alleviated once the effects of pump-priming and fiscal stimuli kick in. Read more...
Further Reading
Tat Hong – FY 2009 Financial Analysis and Review Part 1
Tat Hong – FY 2009 Financial Analysis and Review Part 2For this third and last part on my analysis of Tat Hong’s FY 2009 financials and prospects, I would like to touch a little on their fleet profile as well as prospects moving forward. As readers are probably aware, the global financial crisis has yet to recede and many companies are still struggling to cope with declining orders and reduced demand for their goods and services. Tat Hong is no exception to this and they have not escaped unscathed from the carnage wrecked upon the economy. However, my analysis and discussion shall touch on how the Company is able to weather the storm and maintain a decent level of cash inflows and profitability till the dark clouds clear; and perhaps also snag some good M&A opportunities at the same time.
Fleet Profile and Utilization
For their total fleet profile, it can be seen that they are slowly increasing their total units as well as total tonnage. Their fleet of higher tonnage cranes has increased significantly over the years, as I believe this category of cranes command better rental rates, though there has also been a sizeable increase in the lower tonnage category as these cranes are used for more general purpose work (i.e. not specialized). However, one negative observation is that utilization level has been steadily falling since 2007 (the year the sub-prime problems broke out and led to the sharp recession). Utilization hit a high of 83.5% as at June 30, 2007 and has declined till the current 65.3%. For FY 2010, I would expect utilization levels to fall even further (though probably not below 60%) as the recession is still ongoing and there is no let-up in sight.
Tat Hong is still active in the oil and gas sector in Australia and the mining sector in Indonesia, and is increasing their presence in China through their tower cranes segment. Even if utilization levels remain steady, utilization rates may fall as customers negotiate for lower fees amid the downturn. Roland Ng, who is the CEO of Tat Hong, projected a 5-10% fall in utilization rates for FY 2010. Thus, the effects of the drop in utilizaton levels and rates may cause continual depression of earnings for Tat Hong, though the shift in sales mix as discussed in the previous part 2 should mean that there will be a cushion for gross margins (and hence gross profits). Rental profits will make up a larger portion of the pie but the pie itself will shrink due to less business being available to the Company in the near-term. In the medium-term though, I expect the situation to be alleviated once the effects of pump-priming and fiscal stimuli kick in. Read more...
Further Reading
Tat Hong – FY 2009 Financial Analysis and Review Part 1
Tat Hong – FY 2009 Financial Analysis and Review Part 2
For their total fleet profile, it can be seen that they are slowly increasing their total units as well as total tonnage. Their fleet of higher tonnage cranes has increased significantly over the years, as I believe this category of cranes command better rental rates, though there has also been a sizeable increase in the lower tonnage category as these cranes are used for more general purpose work (i.e. not specialized). However, one negative observation is that utilization level has been steadily falling since 2007 (the year the sub-prime problems broke out and led to the sharp recession). Utilization hit a high of 83.5% as at June 30, 2007 and has declined till the current 65.3%. For FY 2010, I would expect utilization levels to fall even further (though probably not below 60%) as the recession is still ongoing and there is no let-up in sight.
Tat Hong is still active in the oil and gas sector in Australia and the mining sector in Indonesia, and is increasing their presence in China through their tower cranes segment. Even if utilization levels remain steady, utilization rates may fall as customers negotiate for lower fees amid the downturn. Roland Ng, who is the CEO of Tat Hong, projected a 5-10% fall in utilization rates for FY 2010. Thus, the effects of the drop in utilizaton levels and rates may cause continual depression of earnings for Tat Hong, though the shift in sales mix as discussed in the previous part 2 should mean that there will be a cushion for gross margins (and hence gross profits). Rental profits will make up a larger portion of the pie but the pie itself will shrink due to less business being available to the Company in the near-term. In the medium-term though, I expect the situation to be alleviated once the effects of pump-priming and fiscal stimuli kick in. Read more...
Further Reading
Tat Hong – FY 2009 Financial Analysis and Review Part 1
Tat Hong – FY 2009 Financial Analysis and Review Part 2
