• One stop steel centre. Hiaptek is primarily involved in pipe manufacturing and the trading of general steel products, supplying to multiple of industries including manufacturing, infrastructure, water, power plant, shipbuilding, oil & gas, as well as the construction market.

• Through Eastern Steel S/B, a 55%-owned joint-controlled entity (JCE) with Orient Steel Investment Co Ltd (40%) and Chinaco Investment Pte Ltd (5%), Hiaptek is also operating an integrated iron and steel mill at Kemaman, Terengganu. However, in view of the depressed market prices of slabs, soft demand and the increased volatility of foreign exchange rates, the jointly controlled entity (JCE) was temporarily suspended its trial production in Oct 15 as part of the strategy to minimize losses. Since the halt, losses had reduced from RM99m in FY2016 to RM55m in 1HFY17. In 2011, Hiaptek was also granted a 600ha mining concession for iron ore in Bukit Besi, Terengganu.

• Outlook. On the back of improving operating environment and reduced interest cost (redemption of convertible bonds) and narrower JCE losses (mainly due to forex), Hiaptek is expected to improve in its 2HFY17 results, driven by its bread and butter of manufacturing and trading divisions. The group is also planning to restart its integrated mill in 4Q17 (may take 3-4 months to ramp up to full capacity which is 700,000 tonnes).

• Bullish downtrend line breakouts. Following its bullish medium term downtrend resistance breakout (from RM0.36 on 29 Sep) and short term downtrend line breakout (from RM0.38 on 23 Mar) recently, Hiaptek’s near term technical outlook has improved, supported by positive momentum and trend indicators. A decisive breakout above RM0.325 (10-w SMA and 50-d SMA) will spur prices higher towards RM0.335 (50% FR) and RM0.35 (weekly LT downtrend line) before reaching our long term target at RM0.38. On the flip side, failure to hold near RM0.30-0.31 supports may weaken share prices lower towards RM0.27-0.28 levels. Cut-loss at RM0.29

Source: Hong Leong Investment Bank Research - 3 May 2017