- We maintain HOLD on Lion Industries Corp Bhd (LICB) with a lower SOP-based fair value of 64 sen/share (vs. 81 sen/share previously).

- LICB reported a net loss of RM32mil for 1QFY15F (vs. net loss of RM54.3mil a year earlier). This was on the back of a 26% fall in revenue to RM779mil (from RM1.1bil a year earlier).

- Excluding exceptional items (EIs) – impairment loss of RM1.3mil on quoted investments – LICB would have reported a core net loss of RM30.7mil for the quarter.

- The fall in topline was mainly due to lower sales registered for its steel and building material divisions. This was expected given the lull in demand from the construction sector during the quarter due to the fasting period.

- Its steel division slipped into the red with an operating loss of RM28mil in 1Q (vs. a profit of RM2.2mil in 4QFY14) due to lower average selling prices for its long products. We understand that steel bar and wire rods prices averaged at ~RM1,900/MT (vs. ~RM2,100/MT earlier) during the quarter while costs remained competitive.

- Nevertheless, on a YoY basis, losses for the division had narrowed from -RM58mil a year earlier as its hot briquetted iron (HBI) plant was shut down then due to damages caused by a berthing vessel.

- As for its building materials division, operating profit fell by 50% YoY to RM2.3mil despite revenue registering an 8% growth to RM80mil.

- Its property division registered a profit of RM5.7mil (vs. a loss of RM1.4mil) following higher sales for its Promenade project (GDV: RM250mil) in Penang.

- We expect steel selling prices to remain dampened in the coming quarter due to the winter season. In addition, the local steel industry continues to be hampered by the dumping of cheap products from China. The local players are still awaiting a decision by the government to rectify this.

- As such, we have cut our FY15F-FY16F earnings by 21% each to reflect the lower selling prices.

- LICB’s re-rating catalyst still hinges on an effective curtailment of dumping of cheap Chinese steel products into the local market. We maintain HOLD.

Source: AmeSecurities