Hiap Teck Venture’s (HTVB) 2QFY12 results were below our and
consensus estimates. Net profit was weaker q-o-q at RM1.6m (1QFY12: RM8.1m) but
stronger y-o-y, while 1H net profit
stood at RM9.7m (1HFY11: RM3.3m).
The weak results are no cause for alarm as we had expected a soft performance in 2Q due to the festive seasons. We think the company may see a better 2HFY12 activities pick up. Although news
on the iron ore concession has been
quiet for some time, we don’t think that will affect HTVB’s core operations
as this was supposed to be an unexpected
bonus anyway. We maintain our Trading BUY
call, with a lower revised FV of
RM0.74, as we lower the iron ore
concession value-add factor to 10%
from 20% in tandem with our house view.
Weaker as
anticipated. HTVB reported a 2QFY12 net profit of RM1.6m (-80.3% q-o-q), which
is below our and street estimate estimates when annualized. Having said that, we are not surprised as we
had earlier anticipated HTVB’s 2Q numbers to fall in the months which
experienced festive seasons (Nov, Dec and Jan), during which business
activities generally slow down. The lower production in the manufacturing
division resulted in a higher cost of production, which further dampened the
Group’s performance. Nevertheless, its overall 1H performance still looks
promising as the reported earnings were three times that in the same period
last year.
A brighter 2HFY12 ahead. We believe HTVB’s
future prospects remain intact as
the local steel industry may see activities gather pace when more projects
under the Tenth Malaysia Plan and Economic Transformation Programme are rolled
out. Elsewhere, the continuous improvement in the company’s API steel pipes making venture that fetches more robust margins and
which exports 5CT pipes may see
a pick-up, with orders expected to flow in after the festive
seasons. This further supports our view on a better 2H for HTVB.
Iron ore concession
may materialize only later. It has been 3 months since Terengganu’s MB
announced that an iron ore concession will be given to Eastern Steel during a
ground breaking ceremony in December last year. However, so far we have yet to
see the state government issue an official letter to this effect. Nonetheless,
we are not too concerned about the delay in the concession awards because: (i) the company’s BF plant is still under
construction, and (ii) we believe that HTVB already has plans to source for iron ore to feed into its
BF plant and did not take into consideration the Bukit Besi concession when it
ventured into the BF plant project. As we mentioned earlier, the local iron ore
concession would be an unexpected bonus to Eastern Steel and/or HTVB.
Source: OSK188
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