- We maintain HOLD on Lion Industries Corp Bhd (LICB) with a slightly lower fair value of 81 sen/share.

- LICB swung back to the black with a net profit of RM8.7mil in 3QFY14, vs. a net loss of RM41.2mil three months earlier. Its revenue grew by 12% sequentially to RM1.1bil.

- However, LICB reported core net losses of RM30.4mil for the 9M period, while revenue declined by 7% YoY to RM3.2bil.

- Overall EBIT improved to RM5.4mil (vs. -RM3.8mil in 2QFY14) due to improved operating efficiencies.

- The sequential improvement was due to higher sales recorded by its steel division.

- Notably, its steel division recorded an operating profit of RM8mil vs. losses of RM5.9mil in 2QFY14. This is mainly due to better selling prices for steel bars and wire rods in the local market.

- Despite this, LICB and other local steel millers continue to face the dumping of cheap wire rods and steel bars into the local market. We understand that they are in talks with the government to resolve this issue.

- While the quarterly results were an improvement, its 9M were dampened by lower selling prices during the first six months of the financial year.

- In addition, its hot-briquette iron (HBI) plant was shut for two months late last year due to damages caused by a berthing vessel at its jetty.

- Moving forward, revenue should continue to improve in the last quarter as selling prices are sustained.

- Also, we understand that the HBI plant has only begun to resume full production in March (at ~80% currently). Although operations had resumed last October (following the two-month shutdown), tug boats had to be used to carry ore before the floating crane were fully restored in March.

- We have tweaked our model to factor in the ~20% increase in gas tariff for its Peninsular operations, effective May this year. Nevertheless, the impact is minimal as we estimate natural gas to only make up ~2% of production costs.

- Its re-rating catalyst strongly hinges on an effective curtailment of dumping of cheap steel products into the local market. Maintain HOLD.

Source: AmeSecurities