- We maintain HOLD on Lion Industries Corp Bhd (LICB) with an unchanged SOP-based fair value of 82 sen/share.

- The group posted a net loss of RM95.5mil for the 1H of FY14F. Net loss had widened from RM37.2mil a year earlier partly due to an impairment loss of RM54mil on quoted investments.

- Revenue fell by 8% YoY to RM2.1bil due to lower sales registered for its steel and building materials divisions.

- The group’s steel division suffered from lower selling prices and sales tonnage in the 1H. In addition to that, the group also suffered from a two-month shutdown of its hot briquette (HBI) plant in late-CY13 due to damages caused by a berthing capesize vessel at its jetty.

- Sequentially, its revenue growth was flattish while net loss narrowed to RM41mil from RM54mil a year earlier. Excluding the exceptional impairment loss of RM43mil for quoted shares, LICB posted a core net profit of RM2.8mil (vs. core net loss of RM44mil in 1QFY14).

- A positive take-away from its latest 2QFY14 results is that operating losses for its steel operations have reduced substantially QoQ to RM5mil from RM55mil. This is mainly due to improved average selling prices for steel bars and wire rods following a reduction in dumping of Chinese steel in the local market.

- We understand that the Chinese players are dumping less steel due to the appreciating Chinese Yuan. In addition to that, Chinese steel mills have also reduced production volume.

- As such, the average selling prices of steel bars and wire rods have improved slightly in the 2Q.

- Management indicates that it has signed a new 10-year agreement for the supply of natural gas to its Labuan hot briquette plant. We have factored in the increase of gas price in our model.

- Re-rating catalysts include:- (i) a strong recovery in global steel prices; (ii) stronger pick-up of local construction activities; and (iii) effective curtailment of dumping of steel products in the local market. We maintain HOLD.

Source: AmeSecurities