Tat Hong reported S$8.2 million in net profit for 1Q ended June 2013, down 51% year-on-year. Photo: CompanyTH Investor is a shareholder of Tat Hong HoldingsTAT HONG HOLDINGS has turned out to be fortuitous in its purchase of land ("Land A") in the Iskandar region two years ago as the value has since soared.
The company intended to use the land for, among other things, storing its fleet of cranes which currently are housed in Singapore.
Tat Hong is the largest crane rental company in Asia-Pacific and owns the largest fleet of crawler cranes world-wide.
Last Friday (25 Oct), Tat Hong announced that it would not be proceeding with that plan.
Instead, a joint venture (with Tat Hong taking a 25% stake) will be formed with three other partners to develop the land -- which it only recently took possession of -- for higher-value industrial use.
Tat Hong gave the rationale as: "Recent developments in the Nusajaya area have resulted in Iskandar Land A being in proximity to residential, commercial, educational and medical facilities.
"The original intended use of Iskandar Land A is now incompatible with the general land use in the Nusajaya area. In addition, the recent appreciation in the market value of Iskandar Land A has rendered it expensive for use as a depot for crane storage and maintenance."
The land is of 1,074,500 sq ft, equivalent to 11 football fields, and priced in the transaction at RM73 per sq ft, or a 4.3% premium over a professional's valuation. It is a sharp rise from the RM32 psf that Tat Hong paid for it 2 years ago.
Yesterday (Oct 28), in another announcement, Tat Hong said it would realise a gain, net of Malaysian real property gains tax, of approximately RM36.45 million (approx. S$14.22) million, in the financial year ending 31 March 2014.
It didn't include it in the announcement but I understand that Land A is hilly and would cost millions to level.
Tat Hong shares traded at 95 cents recently. Its trailing PE is 9.2 and dividend yield is 4.2%. Market cap = S$598 million.
Chart: Bloomberg
It didn't include it in the announcement but I understand that Land A is hilly and would cost millions to level.
Tat Hong shares traded at 95 cents recently. Its trailing PE is 9.2 and dividend yield is 4.2%. Market cap = S$598 million. Chart: Bloomberg
Storing cranes in Senai
Crane rental companies need large depots to store cranes that are not let out. Tat Hong has five such depots in Singapore.
On 4 Sep 2013, Tat Hong announced that it had secured a 22-year lease from the Jurong Town Corporation for a 16,100 sq m plot of industrial land at Tuas South Street 10.
It also said it would sell its 29,384.4 sq m lease-hold properties at Gul Crescent and realise an exceptional profit.
These deals will result in a reduction of some 13,000 sq m of storage space.
In that July announcement, Tat Hong stated its plan to move some of its less time-sensitive operations to Iskandar where land and operating costs are lower.
Given its latest move to develop the Iskandar land under a joint venture, Tat Hong said it would move its storage, warehousing and maintenance facilities for its crane operations to a lower cost and more suitable location near the Johor Senai Airport area.
There, it had recently acquired two parcels of freehold industrial land totaling approximately 94,000 sq ft for RM18.2 million (approx. S$7.1 million).
This works out to RM194 psf, or 170% more than what it paid for Iskandar Land A.
It's not clear why the cost is much higher. Could it be due to the area being more developed and its proximity to Senai airport? Or could it be the lease terms?
The Senai land is likely to replace the 130,000 sq ft lost in Singapore. It therefore follows that Tat Hong had a bigger plan for the 1-m sq ft Land A when the latter was acquired two years ago.
Indeed, its Nov 2012 announcement said the land would be developed for "multipurpose industrial use and for investment purposes."
Special dividend?
Despite the exceptional profits from the sale of the Gul Crescent property and Land A, I don't expect a special dividend, or an increase in the normal dividend, as the exceptional profits may not be enough to offset an expected decrease in operating profit.
Tat Hong has not had a strong start to FY2014, reporting S$8.2 million in net profit for 1Q ended June 2013, down 51% year-on-year.
Crane rental companies need large depots to store cranes that are not let out. Tat Hong has five such depots in Singapore.
On 4 Sep 2013, Tat Hong announced that it had secured a 22-year lease from the Jurong Town Corporation for a 16,100 sq m plot of industrial land at Tuas South Street 10.
It also said it would sell its 29,384.4 sq m lease-hold properties at Gul Crescent and realise an exceptional profit.
These deals will result in a reduction of some 13,000 sq m of storage space.
In that July announcement, Tat Hong stated its plan to move some of its less time-sensitive operations to Iskandar where land and operating costs are lower.
Given its latest move to develop the Iskandar land under a joint venture, Tat Hong said it would move its storage, warehousing and maintenance facilities for its crane operations to a lower cost and more suitable location near the Johor Senai Airport area.
There, it had recently acquired two parcels of freehold industrial land totaling approximately 94,000 sq ft for RM18.2 million (approx. S$7.1 million).
This works out to RM194 psf, or 170% more than what it paid for Iskandar Land A.
It's not clear why the cost is much higher. Could it be due to the area being more developed and its proximity to Senai airport? Or could it be the lease terms?
The Senai land is likely to replace the 130,000 sq ft lost in Singapore. It therefore follows that Tat Hong had a bigger plan for the 1-m sq ft Land A when the latter was acquired two years ago.
Indeed, its Nov 2012 announcement said the land would be developed for "multipurpose industrial use and for investment purposes."
Special dividend?
Despite the exceptional profits from the sale of the Gul Crescent property and Land A, I don't expect a special dividend, or an increase in the normal dividend, as the exceptional profits may not be enough to offset an expected decrease in operating profit.
Tat Hong has not had a strong start to FY2014, reporting S$8.2 million in net profit for 1Q ended June 2013, down 51% year-on-year.