- We maintain HOLD on Lion Industries Corp Bhd (LICB) with a lower SOP-based fair value of RM0.45/share (vs. RM0.55/share earlier).

- LICB continued to face headwinds in 3Q, as it posted a core net loss of RM40.8mil (vs. profit of RM7.9mil in 2Q). This is on the back of a 17% sequential fall in revenue.

- Excluding an EI amounting to -RM76mil, LICB reported a core net loss of RM64mil for the 9M period (vs. -RM30mil a year earlier).

- The EI amount is for settlement arising from litigation claims against a former subsidiary company, as well as impairment loss on quoted and unquoted investments.

- It was a tough quarter as LICB continued to face challenges in the local steel industry. Operating losses for its steel division widened sequentially on the back of lower sales as well as weak selling prices (at ~RM1,800/MT) for its long products.

- We do not foresee circumstances to improve anytime soon as cheap steel products from China continued to flood the market. In 1QCY15 alone, the import of steel bars and wire rods from China had surged 226% and 102% YoY, respectively.

- The situation will remain challenging as the government had earlier this year concluded that these imported products do not pose a threat.

- On a positive note, its building material division fared better and reported a 9% YoY growth in operating profit for the 9M period.

- Likewise, its property division saw higher billings from its Promenade project in Penang with an operating profit of RM11.6mil (vs. a loss of RM2.5mil a year earlier) in 9MFY15. Sales from this division had expanded to RM48mil (from RM14mil last year).

- Looking ahead, we expect the market to remain competitive due to the oversupply of cheap imports. Following tweaks to our model, we now forecast LICB to report core net losses this year (vs. our earlier forecast of a minor RM1mil core net profit).

- The cut in our SOP value also takes into account changes in market and fair values of its listed subsidiaries. Unless definitive steps are taken to address the dumping of cheap products, the ride remains rough ahead. Maintain HOLD.

Source: AmeSecurities Research - 1 Jun 2015