-  We maintain HOLD on Lion Industries Corp Bhd (LICB) but place our fair value UNDER REVIEW following the release of its FY14 results yesterday.

-  LICB posted a net loss of RM503mil for FY14 vs. a net loss of RM34.5mil in the previous year. This was on the back of a 4% fall in revenue to RM4.5bil.

-  The huge loss was due mainly to exceptional items (EIs) amounting to RM542mil. Excluding the EIs, LICB would have reported a core net profit of RM39mil.

-  The EIs mainly comprised:- (i) impairment on trade and other receivables owing by related parties (RM430mil); (ii) impairment loss on investments (RM70mil); (iii) impairment loss on property, plant and equipment (RM32mil); and (iv) write-down of inventories (RM10mil).

-  Operation-wise, its steel division managed to record a profit of RM2.2mil in 4Q, on the back of stable prices and contributions from its hot-briquette iron (HBI) plant. However, the division reported an operating loss of RM51mil for the full year due to lower selling prices of its long products as well as the shutdown of its HBI plant during the 1H.

-  Meanwhile, its building materials’ operating profit fell by 62% to RM12mil on a 37% dip in revenue.

-  Its property division registered a higher revenue of RM34mil (+40% YoY) following the launch of its Promenade project (GDV: RM250mil) in Penang last June. Thus, the division swung to a profit of RM4.1mil vs. a loss of RM3.8mil in the previous year.

-  The local steel industry continues to be hampered by the dumping of cheap products from China, which has suppressed selling prices.

-  Nevertheless, we understand that the government, via MITI, is engaging the local players to rectify the situation.

-  While we are heartened by LICB’s improving long steel and HBI operations, earnings will continue to be weighed down by dumping of cheap steel as well as its exposure to the flat steel players within the Lion group.

-  Following the weak results, we place LICB’s fair value UNDER REVIEW at this juncture as we re-examine our valuation model.

Source: AmeSecurities