Perwaja’s results were a letdown again, partly sunk by a RM21.9m one-off impairment of a receivables loss. 9MFY12’s core net profit of only RM2.1m was below our and street estimates due to a mismatch in raw materials/selling prices. As the premature monsoon dampened mining operations and delayed the commissioning of its concentration plant, we remain cautious over its near-term outlook and trim our estimates for the next two years. After fine-tuning our valuation, too, we are trimming the FV to RM0.84. Maintain TRADING BUY, for the attractive upside potential from its upstream makeover.
Disappointing. Perwaja posted a heavy loss of RM38.3m for 3QFY12. While we factored in RM21.9m for an impairment of a non-recurring receivables loss, the core net profit of merely RM2.1m for 9MFY12 was still lower than our and street expectations. We suspect the sharp drop in the iron ore price and scrap metal prices during the quarter may have stuck the company with a higher inventory of materials. The demand for Direct Reduced Iron (DRI) and billets were stalled as well, with revenue dropping by 40.2% q-o-q as buyers held back purchases while waiting for the market to move in a clearer direction.
Still waiting on new upstream income. Meanwhile, Perwaja’s mining venture is still pending the final official award from the Terengganu state government. Despite that, initial works and test operations have been carried out, according to our sources. The earlier-than-expected monsoon resulted in heavy rainfall, thereby stalling production from its mine. We also understand from the management that the construction of its concentration plant has been sluggish following the rainy season, thus the commissioning date has now been deferred to early March 2013. As Perwaja was unable to immediately capitalize on the recovery of the iron ore price to almost USD120 per tonne, we decided to revised down our core earnings for FY12 to a loss of RM2.2m in FY12 and a lower profit for FY13 by 7% to RM116.7m
Trading BUY, with lower FV. Although we can understand the final awarding of iron ore mining rights from the Terengganu state government may be time-consuming, we suspect the market may have given up after waiting too long, especially for local investors which lack exposure about the mining business. This, together with the disappointing results has led us to slash our valuation to only account for 10% of potential iron ore DCF from 30% previously. However, we are keeping our book-based valuation at 0.5x, and roll over our valuation to FY13 to derive a lower FV of RM0.84. Given the still-decent upside and the fact that a potential upstream transformation may offer the next quantum leap to the group, we are sticking to our TRADING BUY recommendation on Perwaja.
Disappointing. Perwaja posted a heavy loss of RM38.3m for 3QFY12. While we factored in RM21.9m for an impairment of a non-recurring receivables loss, the core net profit of merely RM2.1m for 9MFY12 was still lower than our and street expectations. We suspect the sharp drop in the iron ore price and scrap metal prices during the quarter may have stuck the company with a higher inventory of materials. The demand for Direct Reduced Iron (DRI) and billets were stalled as well, with revenue dropping by 40.2% q-o-q as buyers held back purchases while waiting for the market to move in a clearer direction.
Still waiting on new upstream income. Meanwhile, Perwaja’s mining venture is still pending the final official award from the Terengganu state government. Despite that, initial works and test operations have been carried out, according to our sources. The earlier-than-expected monsoon resulted in heavy rainfall, thereby stalling production from its mine. We also understand from the management that the construction of its concentration plant has been sluggish following the rainy season, thus the commissioning date has now been deferred to early March 2013. As Perwaja was unable to immediately capitalize on the recovery of the iron ore price to almost USD120 per tonne, we decided to revised down our core earnings for FY12 to a loss of RM2.2m in FY12 and a lower profit for FY13 by 7% to RM116.7m
Trading BUY, with lower FV. Although we can understand the final awarding of iron ore mining rights from the Terengganu state government may be time-consuming, we suspect the market may have given up after waiting too long, especially for local investors which lack exposure about the mining business. This, together with the disappointing results has led us to slash our valuation to only account for 10% of potential iron ore DCF from 30% previously. However, we are keeping our book-based valuation at 0.5x, and roll over our valuation to FY13 to derive a lower FV of RM0.84. Given the still-decent upside and the fact that a potential upstream transformation may offer the next quantum leap to the group, we are sticking to our TRADING BUY recommendation on Perwaja.
Source: OSK
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