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

Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD

Research House: OSK

Price Call: TRADING BUY

Target Price: 0.74

Hiap Teck Venture's (HTVB) 2QFY12 results were below our andconsensus estimates. Net profit was weaker q-o-q at RM1.6m (1QFY12: RM8.1m) butstronger 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 newson  the iron ore concession has beenquiet for some time, we don't think that will affect HTVB's core operationsas  this was supposed to be an unexpectedbonus 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 asanticipated. HTVB reported a 2QFY12 net profit of RM1.6m (-80.3% q-o-q), whichis below our and street estimate estimates when annualized.  Having said that, we are not surprised as wehad earlier anticipated HTVB's 2Q numbers to fall in the months whichexperienced festive seasons (Nov, Dec and Jan), during which businessactivities generally slow down. The lower production in the manufacturingdivision resulted in a higher cost of production, which further dampened theGroup's performance. Nevertheless, its overall 1H performance still lookspromising as the reported earnings were three times that in the same periodlast year.

A  brighter 2HFY12 ahead. We believe  HTVB's future prospects  remain intact asthe local steel industry may see activities gather pace when more projectsunder the Tenth Malaysia Plan and Economic Transformation Programme are rolledout. Elsewhere, the continuous improvement in the  company's API steel pipes making  venture that fetches more robust  margins and which  exports 5CT pipes may seea  pick-up, with  orders expected to flow in after the festiveseasons. This further supports our view on a better 2H for HTVB.

Iron ore concessionmay materialize only  later.  It has been 3 months since Terengganu's MBannounced that an iron ore concession will be given to Eastern Steel during aground breaking ceremony in December last year. However, so far we have yet tosee 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 underconstruction, and (ii) we believe that HTVB already has  plans to source for iron ore to feed into itsBF plant and did not take into consideration the Bukit Besi concession when itventured into the BF plant project. As we mentioned earlier, the local iron oreconcession would be an unexpected bonus to Eastern Steel and/or HTVB.

Source: OSK188 

Blasting Their Way Through

Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD

Research House: OSK

Price Call: HOLD

Target Price: 0.80

OSK Research upgrades Hiap Teck Ventures to Neutral, FV 80 sen

Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD

Research House: OSK

Price Call: HOLD

Target Price: 80.00

KUALA LUMPUR (Dec 5): OSK Research has upgraded HIAP TECK VENTURE BHD [] (HTVB) to Neutral with a fair value of 80 sen.

It said on Monday that HTVB shareholders have approved the cash call exercise for its 55% owned subsidiary, Eastern Steel's blast furnace (BF) project.

Eastern Steel has appointed China Shougang International Trade and Engineering Corporation (Shougang) as its main contractor for the BF. Shougang also show its commitment to the BF project by acquiring 40% of Eastern Steel's equity stake and 10% stake in HTVB.

'Although we think that Eastern Steel will not face much problem in selling its slabs in the first phase to local steel plate mills, we reckon there is an investment risk in a longer term when other new regional casters may ramp up their production,' it said.

OSK Research says the Menteri Besar of Terengganu might announce on Monday during its BF plant ground breaking that the state government is ready to consent to Eastern Steel for its iron ore mining proposal, similar to Perwaja Holdings during their iron ore pelletisation plant ground breaking ceremony.

'We now value HTVB based on -1 standard deviation of its historical trading range at 0.5 times FY12 BV translates into a higher FV of 80 sen. Thus, we upgrade the company to NEUTRAL.

'If our postulation that it may win a portion of the Bukit Besi iron ore concession is indeed correct, a potential valuation re-rating will materialise as the blue-sky DCF for this mining concession is worth RM708 million,' it said.

Hiap Teck slips, OSK has sell call, FV 95c

Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD

Research House: OSK

Price Call: SELL

Target Price: 0.95

KUALA LUMPUR: HIAP TECK VENTURE BHD []'s share price slipped on Friday, July 22 as analysts were cautious about the venture into the upstream steel mill project.

At 4.05pm, it was down four sen to RM1.10 with 2.31 million shares transacted.

OSK Research has a Sell call on Hiap Teck Venture and reduced its fair value to 95 sen as it was cautious about the latest venture.

Hiap Teck's 55% owned Eastern Steel Sdn Bhd had entered into an engineering and procurement contract and a CONSTRUCTION [] contract with China Shougang International Trade and Engineering Corporation for the 1st phase design, procurement and construction of its integrated steel mill in Terengganu.

'We continue to remain cautious on this upstream venture, given the capex intensive nature and new learning curve in operating a blast furnace, the dilution in their share price from its proposed rights issue, and struggling earnings with poor visibility beyond 6 months for the sector.

'We downgrade the Company to SELL from NEUTRAL, while holding our FV of 95 sen at 8.0 times FY12 EPS given its recent share price run-up of 20% ahead of our FV,' it said.

Hiap Teck grossly below expectations, cutting forecast

Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD

Research House: AFFIN

Price Call: SELL

Target Price: 0.70

Hiap Teck Venture Bhd
(June 30, 93.5 sen)
Downgrade to sell at 94.5 sen with revised target price of 70 sen (from RM1.05): Annualised, Hiap Teck's 9MFY11 core net profit of RM8.7 million (-77.1% year-on-year) came in way below our and street estimates.

The discrepancy was largely due to a weaker-than-expected earnings before interest and tax (Ebit) margin of 2.8% compared to our full-year (Hiap Teck's financial year ends in July) assumption of 5.8%.

Results were dragged down by the razor-thin operating margin due to weak demand and selling prices coupled with the rising cost of raw materials. As expected, no dividend was declared for the quarter.

In 3QFY11, Hiap Teck reported a net profit of RM5.4 million (-68% y-o-y; +21.6% quarter-on-quarter) on the back of RM236 million sales.

Sales fell by 3.4% q-o-q and 18.4% y-o-y on lower sales volume and selling prices due to weak demand from both the domestic and export
markets.

Ebit margin also contracted significantly to 4.5% (3QFY10: 8.7%; 2QFY11: 2.8%) due to higher raw material costs and low capacity utilisation.

In 3QFY11, hot rolled coils (HRC) prices averaged US$618 (RM1,866) per tonne against US$508 per tonne in 3QFY10 (+22% y-o-y).

In the near term, we believe demand will continue to be challenging following the Japan earthquake, the political unrest in the Middle East and North Africa and the re-emergence of the sovereign debt crisis in Europe.

In addition, domestic demand has yet to see a significant pick- up. Given the upcoming fasting month and the summer lull period, we expect domestic demand will remain soft.

Also, the rise in the cost of inputs has more than outpaced the increase in selling prices, thereby adding pressure to margins. In the pipeline, Hiap Teck through its 55% stake in Eastern Steel is setting up a mini blast furnace with an annual installed capacity of up to 700,000 tonnes, with capital expenditure of circa'' RM850 million.

The company has proposed a fund-raising exercise totalling RM393 million through a 1:1 rights issue at an indicative price of RM0.68 per share and bond issuance of up to RM180 million.

In view of the moderating demand and weak selling prices, we have cut our average selling price (ASP) assumptions for 2011 to 2013 by 5% to 7%.

This led to a 40% to 50% cut in our earnings forecast. Target price has been cut to 70 sen (from RM1.05), despite rolling over our valuation horizon to FY12 but still based on an unchanged seven times price-earnings ratio.

Share price performance has been consistent with our call, but we think the outlook in 2HCY11 will continue to be challenging, hence we downgrade Hiap Teck from 'reduce' to 'sell'.

De-rating catalysts include weak demand both from domestic and external markets coupled with earnings dilution from the proposed rights issue as we expect new earnings stream from the plant expansion will only come through from 2013 onwards. ' Affin IB Research, June 30


This article appeared in The Edge Financial Daily, July 1, 2011.

Hiap Teck slides to 23-month low

Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD

Research House: OSK

Price Call: HOLD

Target Price: 0.95

Hiap Teck Venture Bhd, a Malaysian steel products manufacturer, dropped to a 23-month low in Kuala Lumpur trading after fiscal third-quarter profit dropped 68 per cent from a year earlier to RM5.42 million.

The stock slid 1.6 per cent to 93 sen at 9:06 a.m. local time, set for its lowest close since July 17, 2009. -- Bloomberg

HIAPTEK - OSK Research maintains Neutral on Hiap Teck, FV RM1.06

Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD
Research House: OSK

KUALA LUMPUR: OSK Research said HIAP TECK VENTURE BHD []'s 2Q numbers rebounded slightly, with its bottomline supported by the recovery in its manufacturing division, returning it to the black on a q-o-q basis.

It said on Thursday, March 31 that it expects HTVB to benefit from strengthening steel prices going forward, particularly its trading division, which benefits from the time lag between cheap materials and higher average selling prices.

'We also continue to monitor the progress of its Blast Furnace (BF), which is still pending further approvals. Maintain Neutral with a FV of RM1.06,' it said.

HIAPTEK - RHB Research maintains underperform on Hiap Teck

Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD
Research House: RHB

KUALA LUMPUR: RHB Research is maintaining its Underperform call on Hiap Teck Ventures Bhd while the indicative fair value is maintained at RM1.18 based on 7x CY11 EPS of 16.9 sen.

The research house said on Monday, Jan 31 that Hiap Teck has proposed a rights issue to raise gross proceeds of up to RM218.9 million (at an indicative basis of one-for-one and rights price of 68 sen).

In addition, Hiap Teck has also proposed to issue up to RM180 million nominal value of convertible bond, with coupon rate and conversion price to be determined later.

'Ceteris paribus, the RM391.6 million net proceeds (both equity and debt) will overall reduce Hiap Teck's net debt and net gearing of RM269.8 million and 0.4 times as at Oct 30, 2010 to RM58.2 million and 0.1 times,' it said.

RHB Research said the new shares from the rights issue will dilute Hiap Teck's FY07/12 EPS by 43% from 17.6 sen to 10 sen.

The net proceeds from its rights issue and convertible bond issue will mainly be used to fund the Phase 1 of its RM750 million blast furnace plant in Kemaman, Terengganu.

'Forecasts maintained, pending the completion of the rights issue and convertible bond issue. Indicative fair value is maintained at RM1.18 based on 7x CY11 EPS of 16.9 sen,' it said.