Hiap Teck Venture (HTVB) made a strong come back in 3QFY13 with a net profit of MYR9.1m (+>100% q-o-q), exceeding our and street estimates. The company has yet to book in earnings from its blast furnace plant, which it expects to complete by end-2013. We have revised our earnings model following the internal reallocation of coverage resources. Maintain Trading BUY, with our new MYR0.66 FV derived from a 0.5x FY14F P/E.
Strong comeback in 3Q. HTVB reported 3QFY13 net profit of MYR9.1m (+>100% q-o-q, -27.2% y-o-y), a strong comeback after having posted sluggish net earnings of MYR1.7m in the preceding quarter. Its EBITDA margin improved by 3.4%-pts q-o-q despite the flattish revenue sequentially, mainly attributed to lower production cost on more effective controls and higher production efficiency.
Blast furnace plant yet to generate earnings. As the company targets to complete its blast furnace plant by end-2013, it has yet to realize any contribution from this segment. Nonetheless, we believe that once the plant starts operation, it should contribute positively to the Group’s bottomline.
Change of analyst and valuation method. Due to our internal resource reallocation, there had been a switch in the analyst covering HTVB as well as a change in our valuation methodology on the stock. We are now valuing HTVB using a P/B multiple, given that earnings growth may not be too significant before its blast furnace plant is completed. Therefore, we believe that the P/B valuation method should be more reflective of the company’s true value.
Maintain Trading BUY, FV revised up. Based on our new valuation methodology that pegs HTVB to 0.5x FY14F P/B, we revise our FV upwards to MYR0.66, which still offers investors a potential upside of 26%. Nonetheless, as the business of steel counters is cyclical in nature, with volatile earnings, we maintain our Trading BUY recommendation on HTVB.
Strong comeback in 3Q. HTVB reported 3QFY13 net profit of MYR9.1m (+>100% q-o-q, -27.2% y-o-y), a strong comeback after having posted sluggish net earnings of MYR1.7m in the preceding quarter. Its EBITDA margin improved by 3.4%-pts q-o-q despite the flattish revenue sequentially, mainly attributed to lower production cost on more effective controls and higher production efficiency.
Blast furnace plant yet to generate earnings. As the company targets to complete its blast furnace plant by end-2013, it has yet to realize any contribution from this segment. Nonetheless, we believe that once the plant starts operation, it should contribute positively to the Group’s bottomline.
Change of analyst and valuation method. Due to our internal resource reallocation, there had been a switch in the analyst covering HTVB as well as a change in our valuation methodology on the stock. We are now valuing HTVB using a P/B multiple, given that earnings growth may not be too significant before its blast furnace plant is completed. Therefore, we believe that the P/B valuation method should be more reflective of the company’s true value.
Maintain Trading BUY, FV revised up. Based on our new valuation methodology that pegs HTVB to 0.5x FY14F P/B, we revise our FV upwards to MYR0.66, which still offers investors a potential upside of 26%. Nonetheless, as the business of steel counters is cyclical in nature, with volatile earnings, we maintain our Trading BUY recommendation on HTVB.
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