Hiap Teck Venture - Above Expectations (OSK)

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.

Ho Hup and Muhibbah (CIMB)

Ho Hup Construction Co Bhd expects to complete its financial regularisation plan by the fourth quarter of this year. Its executive director Derek Wong Kit Leong said the company has received Bursa Malaysia's approval for its regularisation proposal on May 13, 2013. "Based on the listing requirement, we will apply to Bursa for upliftment of Practice Note 17 (PN17) status after we have achieved two consecutive quarters of profits upon completion of the proposed regularisation exercise," he said.

 For its future growth, Wong said the company aims to focus on property development, construction and the ready mixed concrete business. "Ho Hup has a long track record in the property development and construction sectors and we will continue to leverage on our core business strengths and build on our vast experience for renewed growth," he added. (sun)

Muhibbah Engineering has been awarded a licence by Petronas as an approved supplier for offshore facilities construction and major onshore fabrication works. This allows the company to tender and participate in upcoming offshore facilities construction and major onshore fabrication works for Petronas, as well as other oil operators in Malaysia. (StarBiz)

Ho Hup eyes PN17 exit by October, profitability (Star)

Ho Hup Construction Co Bhd aims to wrap up its ongoing regularisation exercise and exit PN17 by September or October. The company is also expected to return to profitability this year.

Executive director Derek Wong said on Thursday Ho Hup's regularisation was almost complete, with only a few milestones, such as negotiations with creditors, left to be finalised.

"We think our debtors will agree to the settlement. It's a good deal. They don't have to take a haircut and are getting cash and shares," he told journalists following a shareholders meeting.

Wong added that based on the firm's year-to-date earnings, he sees Ho Hup turning profitable this year after five years of losses.

"Our agreement with Malton to co-develop the land in Bukit Jalil is key to this," he said.

Ho Hup had received Bursa Malaysia's approval for its regularisation plan on May 13.

It will apply to be uplifted from PN17 once it has showed two consecutive quarters of profits upon completion of the regularisation.

Cheaper proxy to Favco (HuangDBS)

(OSK) Muhibbah  may  climb  further  after  the  strong  move  yesterday. Purchase  can  be  made  if  the  stock  closes  above  MYR1.50,  with  a close  below  MYR1.40  as  a  stop-loss.  Price  target  is  MYR1.75,  if  the recent  high  of  MYR1.60  is  broken.  Failure  to  get  above  MYR1.50, however,  could  leave  the  stock  trading  sideways  and  it  could  slide further if the stop-loss is triggered. 

Muhibbah Engineering, Buy; RM1.50 (HuangDBS)
Price Target : RM2.15; MUHI MK
Cheaper proxy to Favco
Cheap proxy to Favelle Favco with exposure to other growing segments. RAPID projects and Myanmar
airports biddings still key catalysts. Attractive valuation with 4-6x FY13-15 PE. Maintain BUY with RM2.15 TP (SOP valuation)

The race is on for monorail (CIMB)

Latest news in the extension of the KL Monorail that the contract scope is now larger came as a positive surprise. MRCB, IJM Corp and Scomi are initial contenders. We believe an IJM-Scomi consortium will have a greater advantage given Scomi's rolling stock expertise.

What Happened 

The Edge Weekly reported that the proposed extension of the KL Monorail to Old Klang Road has sparked new interest and involves further stretching the alignment to Sunway. Sources said that MRCB submitted its proposal to Prasarana a month ago while other companies like IJM Corp are also looking to submit their proposals. In all proposals, Scomi Engineering is the technical partner to provide systems and cars.  

What We Think

This news is not a surprise as we are aware that proposals and tenders for the KL Monorail extension will progress in 2H13. However, stretching the KL Monorail extension to Bandar Sunway is a positive surprise. MRCB's proposal was unexpected as the group did not hint at such a move. IJM's incoming proposal is in line with the group's guidance that it will continue to explore domestic infrastructure opportunities in collaboration with Scomi (IJM holds a 9.1% stake). The RM3bn potential cost is a huge boost to any order book. Civil works (est. RM2.5bn) will raise IJM's order book by 89% to RM5.3bn and more than double MRCB's to RM3.9bn. We expect a 5-6% pretax margin from the monorail project as the award will be based on an open tender. This news is positive for the overall sector. New rail jobs over the next 5-10 years go beyond MRT and the KL-Singapore HSR. 

What You Should Do 

Stay invested in MRCB and IJM as expectations that both companies will win the monorail job could trigger a re-rating. However, we prefer IJM to MRCB for exposure to monorail jobs. We believe an IJM-Scomi consortium stands a better chance of winning the bid as the JV's cost advantage lies in Scomi's expertise in monorail rolling stocks. MRCB may not lose out as it was reported that the group is the frontrunner for freight rail upgrade jobs in Klang Valley worth over RM2bn.