Hiap Teck Venture (HTVB)’s 1QFY13 results were way below the street’s and our estimates, dragged down by sluggish demand for steel products, weak steel prices, slow sales delivery and anti-dumping duties imposed by the Australian government. With no immediate catalyst to boost earnings, the next quarter remains challenging. Therefore, we are slashing HTVB’s FY13 and FY14 earnings forecasts and valuing the company at lower base parameters. Downgrade to SELL, with our FV lowered to RM0.40.
Disappointing numberss. HTVB’s 1QFY13 results were disappointing, with its net profit of RM1.0m making up only 5% of our full-year forecasts and 3% of consensus’. This was mainly attributed to sluggish demand for steel products and slow sales delivery during the Hari Raya long holidays. In addition, management claimed that the availability of cheaper imported steel products had adversely affected the domestic steel industry. Meanwhile, the anti-dumping duties imposed by the Australian government may have also dampened export sales.
Next quarter to be weak too. We expect the second quarter to remain weak as the Nov-Jan period is a seasonally weaker quarter, during which business activities slow down during the Christmas celebration and pre-Chinese New Year preparations.
Still waiting for blast furnace plant, upstream venture. The group’s blast furnace plant – which is still under construction – is scheduled to be completed by end-2013. This means that it would be a long wait before Hiap Teck can reap any positive contributions. Besides, its upstream venture into iron ore mining at Bukit Besi has been stagnant for some time. We suspect that any further progress may only take place after the country’s 13th General Election, which should be held no later than April 2013.
Earnings cut. Downgrade to SELL. Due to the poor profit visibility, we are slashing our FY13f/FY14f earnings estimates by 51.4% and 41.1% respectively. Furthermore, we are also lowering HTVB’s valuation parameter and now peg it at 0.24x FY13f BV, which is -1.5 SD (previously -1.0SD) from the mean of the stock’s 5-year historical trading band. Applying a 10% iron ore DCF value, we derive a new FV of RM0.40, which is >10% lower than the stock’s last closing price of RM0.465. Downgrade HTVB to SELL.
Disappointing numberss. HTVB’s 1QFY13 results were disappointing, with its net profit of RM1.0m making up only 5% of our full-year forecasts and 3% of consensus’. This was mainly attributed to sluggish demand for steel products and slow sales delivery during the Hari Raya long holidays. In addition, management claimed that the availability of cheaper imported steel products had adversely affected the domestic steel industry. Meanwhile, the anti-dumping duties imposed by the Australian government may have also dampened export sales.
Next quarter to be weak too. We expect the second quarter to remain weak as the Nov-Jan period is a seasonally weaker quarter, during which business activities slow down during the Christmas celebration and pre-Chinese New Year preparations.
Still waiting for blast furnace plant, upstream venture. The group’s blast furnace plant – which is still under construction – is scheduled to be completed by end-2013. This means that it would be a long wait before Hiap Teck can reap any positive contributions. Besides, its upstream venture into iron ore mining at Bukit Besi has been stagnant for some time. We suspect that any further progress may only take place after the country’s 13th General Election, which should be held no later than April 2013.
Earnings cut. Downgrade to SELL. Due to the poor profit visibility, we are slashing our FY13f/FY14f earnings estimates by 51.4% and 41.1% respectively. Furthermore, we are also lowering HTVB’s valuation parameter and now peg it at 0.24x FY13f BV, which is -1.5 SD (previously -1.0SD) from the mean of the stock’s 5-year historical trading band. Applying a 10% iron ore DCF value, we derive a new FV of RM0.40, which is >10% lower than the stock’s last closing price of RM0.465. Downgrade HTVB to SELL.
Source: OSK
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