Friday 30 March 2012

HIAPTEK (FV RM0.74 - TRADING BUY) 1HFY12 Results Review: Softer Showing as Expected


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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