Translate This Page

Wednesday, July 24, 2013

Hiap Teck Venture - Outlook Brightens (OSK)

Fair Value : MYR 0.66 

We  are  lifting  our  forecasts  for  Hiap  Teck  Venture  (HTVB)’s FY13F-FY15F  earnings  by  9.5%,  12.0%,  and  10.1%  respectively  owing  to improved earnings visibility.   Phase 1a of Eastern Steel’s blast furnace is  scheduled  to  be  completed  by  end-2013  and  commence  trial operation  by  Jan  2014.  Meaningful  earnings  from  Eastern  Steel  should be  seen  in  FY15F.  Maintain  Trading  BUY,  with  MYR0.66  FV,  based  on 0.5x FY14F P/ BV. 

  Earnings  visibility  improves.  We  met  up  with  HTVB's  Management recently  and  believe  that  the  Group’s earnings  outlook  has  improved, although  the  steel  industry  remains  challenging  and  demand  for  its products has yet to pick up strongly.

  Solidifying  existing  business. HTVB’s current strategy is to solidify its existing  business  divisions  while waiting for the Eastern Steel’s blast furnace  plant  to contribute  in FY14-FY15.  The  utilisation  rate  of its pipe manufacturing plant increased from 36% in FY12 to 40% currently amid a  pick-up  in  demand,  with  the  division  reporting  positive  earnings. Meanwhile,  the  sales  volume  for  its  trading  division  has  also  improved although this was largely offset by depressed steel prices due to China’s steel  dumping.  HTVB’s  scaffolding  division  remains  stable  and contributed  positively  to  the  Group.  All  in  all,  sales  and  earnings improved y-o-y and we think HTVB would be able to close its FY13 (FYE July) with a decent growth y-o-y. 

  API pipes could be an upside surprise. HTVB is a licensed American Petroleum  Institute  (API)  pipe  producer.  However,  sales  did  not  meet expectations  as  the  Group  could  not  price  the  API  pipes  competitively due  to  high  production  costs.  Currently,  HTVB  has  stopped  producing and exporting  API  pipes, but  the US Government’s  recent anti-dumping duties  against  certain  pipe  makers  may  give  HTVB  an  opportunity  to revive  this segment.  Nonetheless,  HTVB  would  not  rush  into  expanding this segment and will resume production only when the price is right. 

No comments: