Published February 14, 2009

Forex losses tax heavy toll on Tat Hong's Q3 earnings

Revenue for the three months falls 7% to $146m

By VEN SREENIVASAN

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A 20 per cent plunge in the Australian dollar triggered a $23 million foreign exchange translation loss for crane lessor Tat Hong Holdings in its third fiscal quarter.

MR NG '... our operating numbers and balance sheet remain strong.'

As a result, net profit for October-December 2008 sank 86 per cent to $2.97 million, from $21.2 million a year earlier.

The slide was largely due to a slump in the Aussie currency. Tat Hong gets about half its income from Australia, primarily in the huge resources sector.

But for the forex losses, Tat Hong would have posted net profit of more than $26 million during the quarter, which would have been a 24 per cent gain from the previous year.

Revenue for the three months was $146.1 million, down 7 per cent from the previous year's $157.9 million, largely due to lower equipment sales. Equipment sales fell 33 per cent to $48.9 million, from $72.7 million, as customers turned cautious about capital investment.

But the key crane rental business - which accounts for two-thirds of Tat Hong's annual profit - remained resilient, posting a 15 per cent rise in revenue to $48.8 million.

Likewise, the general equipment rental, parts and services and tower crane rental businesses grew during the quarter.

The results translated into a net profit of $54.3 million for the nine months to end-December 2008, a 12 per cent drop from the previous year's $61.4 million.

The nine-month profit would have been some $74.2 million if not for a $19.9 million forex translation loss - much of it during Q3.

Revenue for the April-December 2008 period was up 14 per cent to $521.1 million, from $456.2 million.

The results translated into nine-month earnings per share of 10.73 cents, versus 12.13 cents previously. Net asset value per share was 72 cents, versus 74 cents previously.

Tat Hong has $44.4 million cash on its balance sheet and a low debt-equity ratio of 0.53.

Chief executive Roland Ng said he is confident the company would remain profitable through the economic downturn.

'These are challenging times for everyone, but our operating numbers and balance sheet remain strong,' he said. 'Our equipment sales will slide in the coming year, but our rental business remains robust.

'Even if rental rates fall 5-10 per cent, our forward bookings show the volume and demand will more than make up for this. On the equipment side, we will reduce inventory 15 per cent from the current $210 million. We will buy less, but sell more.'

Mr Ng said demand for Tat Hong's cranes and equipment will remain strong over the coming year as governments continue to pump-prime their economies through infrastructure spending.

Tat Hong is one of the world's largest crane companies. It is the world's No 1 in terms of its fleet of crawler cranes and No 4 in terms of total cranes owned.