We are ceasing coverage on Tong Herr Resources (THR) due to internal resourcereallocation. We think the company may still be facing challenging operating conditions due to sluggish demand, no thanks to the weak recovery in the European and US economies. That the European Commission has terminated its probe into possible circumvention of its anti-dumping measures may be positive for THR but demand is still the key factor. Our last call for THR was SELL with FV of RM1.56.
Demand remains sluggish. Against the backdrop of slow recovery and uncertainties in both the Eurozone and the US economy, demand for THR’s product has remained sluggish as these markets are its largest revenue contributors. Apart from that, the global economy has been fragile while the prevailing uncertainties have further sapped demand.
Termination of investigation looks positive but demand is still key. The European Commission had on 15 Jan 2013 proposed to terminate investigations into possible circumvention of anti-dumping measures in accordance with Regulation No. 2/2012 for the imports of certain stainless steel fasteners and parts thereof consigned from Malaysia and Thailand. We believe this latest development will have a positive effect on THR’s sales to Europe and boost the contribution from that region. However, we think that a pick-up in demand is still the key for the company to turn around.
Outlook still gloomy. We continue to believe that the company has a solid foundation and strong balance sheet but macro factors are affecting its earnings power. As we have highlighted earlier, we think that THR’s profit visibility remains murky and its outlook continues to be fraught with challenges. We had earlier revised downwards THR’s earnings forecasts significantly and downgraded the counter to SELL.
Ceasing coverage on THR. We are ceasing coverage on Tong Herr Resources due to internal resource reallocation, with our last call for the company being a SELL, with FV standing at RM1.56.
Source: OSK
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