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.
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.
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