Brokers' Call

Crane rental firm Tat Hong's third-quarter revenue for 2016 fell 19 per cent.
Crane rental firm Tat Hong's third-quarter revenue for 2016 fell 19 per cent.PHOTO: TAT HONG HOLDINGS

Tat Hong

Broker: OCBC Investment Research

Target Price: 45 cents

Call: Hold

Tat Hong's third-quarter revenue for 2016 fell 19 per cent year-on-year to $124.8 million as all divisions reported lower turnover, and overall gross profit margin declined 3.2 percentage points to 30.6 per cent, with all divisions except the tower crane rental segment recording lower gross profit margin.

A net loss of $6.7 million was recorded versus a net profit of $4.5 million in the third quarter of the 2015 financial year. The group expects 2016 earnings to be "depressed", which is largely mirrored by industry peers. The proposed spin-off of the tower crane rental segment on the Taiwan Stock Exchange may offer some value for shareholders if approved, although the process is likely to take longer than expected.


Broker: NRA Capital

Target Price: 22.5 cents

Call: Overweight

LHN is a property services company specialising in revitalising industrial and commercial properties by maximising net lettable area, and optimising tenant and usage mix.

We initiate coverage on LHN as we expect its performance to improve this year in the absence of one-off costs incurred last year, and as a result of higher occupancy at new leases secured over the past year.

At new master lease 18 Tampines Industrial Crescent, occupancy has increased from over 75 per cent to near 90 per cent over the last two to three months.

We are mindful that industrial rentals fell by 2.1 per cent last year. However, LHN leases most of its properties from owners. The situation is actually an opportunity for LHN to secure new (and renew existing) master leases at lower rental rates and rapidly grow its portfolio over the next two years.

More recently, LHN has been taking advantage of its post-IPO balance sheet to acquire selected properties with space-optimisation upside potential. We expect these investments to help save on leasing costs and maintain margins.

Overseas Education

Broker: RHB Securities Research

Target Price: 36 cents

Call: Sell

While student withdrawals from the relocation of its Orchard campus to Pasir Ris have stabilised, we think the repatriation of foreign workers would continue to rise in this weak macroeconomic environment.

Thus, we expect dwindling foreign student numbers this year, affecting the entire foreign system school industry.

We remain bearish on the industry this year as we expect to see continued downsizing of firms in expatriate-concentrated industries like finance, and oil and gas in Singapore.

On the back of the challenging macroeconomic outlook, we note that the repatriation of expats could also be due to companies not doing well in their home countries.

Therefore, Overseas Education could be affected by the repatriation of existing students and negative growth in the foreign student pool.

Currently, 36 per cent of Overseas Education's students are in high school. Hence, we think that new enrolments may not be able to offset the number of students graduating at the end of the academic year.

A version of this article appeared in the print edition of The Straits Times on February 22, 2016, with the headline 'Brokers' Call'. Subscribe