Following our previous post on our thoughts on the privatisation offer of Tat Hong Holdings, we thought we share some of our findings on the Tower Crane Leasing Industry within Singapore.
Within Singapore there are 3 main listed players – Tat Hong Holdings, Sin Heng Heavy Machinery and Tiong Woon Corporation.
While all 3 players are in tower crane leasing there are slight differences in terms of the industries that they supply their cranes. For example, Tat Hong only supplies to the construction industry whereas for Sin Heng and Tiong Woon, they service the Oil & Gas and Offshore Marine industries alongside the construction and infrastructure industry. However, all in all, looking at the capital cycles given how the construction, O&G and Offshore Marine sectors have been on the decline, these companies have been hit in terms of their valuations. Hence, this was what prompted us to look into the industry.
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Looking at the valuations, one would notice that all 3 companies are trading at very low price to book ratios. The recent run up in Tat Hong’s valuations was due to the privatisation offer.
Comparing all 3 companies, we noticed that they have all been paring down debt over the years, reducing excessive inventory and controlling capital expenditures. Something that is similar amongst all the tower crane leasing companies are that they are all very highly leveraged with debt to equity close to 50%. However, after factoring in the cash position of each company, one would notice that Sin Heng is much less leveraged amongst the 3.
Given a choice, we do prefer Sin Heng Heavy Machinery for its risk reward ratio – where we find that the upside potential is far higher than its downside risk. In the case for Tiong Woon Corporation and Tat Hong Holdings (before it got the privatisation offer), markets were pricing it like in the case of a default scenario. However, one has to note that Sin Heng has a far lower liquidity of the 3 companies and it would be hard to accumulate a sizeable position in this company.