- Lion
Industries Corp (Lion) remained in the red – albeit narrowed – recording a
RM6.8mil in net losses for 2QFY13. This brings its cumulative net losses to
RM32.7mil for 1HFY13.
- Nonetheless,
we are putting our estimates UNDER REVIEW, pending a meeting with the management.
- Losses
for the quarter were mainly contributed by the weak steel division, which
suffered RM35.9mil in operating losses, and losses at the property development
unit amounting to RM3.2mil.
- The main
reason for the weak steel numbers were the continued tough operating environment
where selling prices remained weak – at the low-end of RM2,000/tonne range, albeit
inching up – although sales volume had picked up comparing to the preceding quarter.
- Nonetheless,
high input costs – despite the weak global demand – at the high-end of US$300/tonne
range exacerbated the situation.
- However,
there are signs of recovery. Firstly, as we mentioned above, sales volume have picked
up QoQ. Secondly, there is upside from the Malaysian government’s decision to proceed
with anti-dumping duties on imported wire rods from select countries. Also, we expect
local steel demand to accelerate post elections.
- From a
valuation standpoint, Lion is trading at a depressed FY13F P/B of 0.2x which is
1 standard deviation below its P/BV historical mean. The company may trade
within range in the near term given the current sentiment but positive news
from the Chinese market would push its valuations up.
- We
maintain our BUY rating with our fair value kept at RM1.35/share, pegging a 10%
discount to our FD SOP of RM1.50/share.
Source: AmeSecurities
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