Tat Hong-A soaring crane still needs to rest

Story: Tat Hong's revenue grew 17% y-o-y to S$157.9m in 3Q08, and 31% to
S$456.2m in 9M08. The crane utilization rate still stood at a high 81.2% as
of end 3Q08, slightly down q-o-q from 83.5%. Net profit subsequently jumped
20% y-o-y to S$21.2m in 3Q08 and 65% to S$61.4m in 9M08. This set of
results is roughly in line with expectation, and Tat Hong remains on target
to reach our net profit estimate of S$86.8m in FY08.

Point: Despite the strong outlook for construction and infrastructure
projects in Asia Pacific and its proven track record, we believe that the
lowered investors' risk appetite will make it increasingly hard for Tat
Hong to continue justifying a substantial valuation premium over its listed
peers and subsidiary in Singapore and Australia. Tat Hong currently trades
at 15x FY09 PE and 6.8x FY07 P/B, vs. its peers'average PE of 8x and P/B of
about 1.5x. Indeed, given that the market volatility is unlikely to subside
in the near term, we reckon the risk to Tat Hong's share price to be
increasingly tilted towards valuation compression, as compared to the lower
probability of share price re-rating.

Relevance: We have downgraded our fair value for Tat Hong to S$2.70, using
a downward revised 13x FY09 PE, vs. 16x previously. This is within the PE
range of 9x-25x since the group staged a profit turnaround in FY03, and is
roughly in line with Tat Hong's average PE of about 13.6x. While the
substantial valuation premium over its peers' corresponding 8x PE, at our
fair value, may still look huge, we believe that it is reasonable given Tat
Hong's proven track record in pursuing earnings growth and its
substantially bigger market capitalization. We have also downgraded Tat
Hong to Fully Valued.