Macro environment less challenging – Downside risks to TAT’s earnings have abated: 1) Infrastructure spending plans announced regionally as part of fiscal response to recession provide support to construction equipment rental and utilization rates; 2) Credit markets, while still challenging, are finally thawing – easier access to asset financing could boost sales of construction equipment; 3) Recent AUD appreciation and JPY depreciation vs. SGD lowers risk of FX translation losses.

TAT well positioned to benefit – 1) Cranes are some of the first pieces of equipment to be deployed in infrastructure projects. TAT is the market leader in crawler cranes with significant tonnage of larger models, implying greater pricing power; 2) Customers prefer to rent large cranes rather than own them during a downturn given financing challenges; 3) M&A activity may pick up as company valuations look cheap. Execution risk is low as TAT has M&A experience in Australia while China JVs have begun contributing to bottom line.

Earnings resilience – We maintain our earnings estimates and our assumption of -8%/-15% declines in rental rates in FY10-11E, respectively, ~70% utilization, and 10% annual fleet expansion from M&A. Note that rental business (~65% of gross profits) can still break even when rental rates fall 30% from current levels and utilization drops to 50% simultaneously.

Upgrade to Buy (1H); 5.2x FY10E P/E – Our new target price of S$1.10 is based on ~7x FY10E P/E (vs. ~0.6x FY10E P/B previously, as investor focus reverts to earnings growth), slightly above historical P/E support of 6x, in line with better earnings visibility.