HTVB’s 9MFY22 core net profit of RM134.2m (+31.4%) beat our expectation, accounting for 101.4% of our full-year estimate, due mainly to better-than expected sales volume at both trading and manufacturing segments. We raise our FY22 core net profit forecast by 9.4% to RM144.9m, mainly to account for higher sales volume assumptions at both trading and manufacturing segments. FY23-24 forecasts, on the other hand, remain largely unchanged, pending further update with management. We maintain our BUY rating on HTVB, with unchanged TP of RM0.63 based on unchanged 7x CY23 core EPS of 9.0 sen.

Better-than-expected. 3QFY22 core net profit of RM30.7m (-4.9% QoQ; -53.0% YoY) took 9MFY22 total sum to RM134.2m (+31.4%). The results beat our expectation, accounting for 101.4% of our full-year estimate, due mainly to better-than-expected sales volume at both trading and manufacturing segments. Core net profit of RM30.7m in 9MFY22 was arrived after adjusting for (i) RM5.9m impairment at JV, (ii) RM0.2m unrealised forex gain, (iii) RM2.1m disposal gain, and (iv) RM0.1m PPE written off.

QoQ. Despite revenue growing by 37.1% to RM457m, 3QFY22 core net profit fell by 4.9% to RM30.7m, as improved sales volumes (for both trading and manufacturing segments) were more than offset by lower average selling prices, alongside higher raw material price. Netting off RM4.9m one-off accounting adjustment on shareholding dilution, JV earnings fell by 59.8% to RM3.3m in 3QFY22, due mainly to margin compression arising from lower average selling price and high steelmaking input costs (in particular, iron ore).

YoY. 3QFY22 core net profit fell by 53.0% to RM30.7m, as higher sales volumes at both trading and manufacturing segments were more than offset by higher costs of inventories. Earnings contribution from ESSB (Eastern Steel, a 27.3%-owned associate) declined by 83.2% to RM3.3m in 3QFY22, dragged mainly by lower average selling price, high steelmaking input costs (in particular, iron ore) and shareholding dilution (from 35% to 27.3% since Nov-21).

YTD. 9MFY22 core net profit increased by 31.4% to RM134.2m, boosted mainly by escalated steel prices during 1QFY22 and higher sales volumes, which have in turn boosted earnings contributions from trading and manufacturing segments, as well as JV earnings.

Outlook. Management remains positive on its performance in 4QFY22, as the resumption of economic activities gather momentum and business confidence improved.

Forecast. We raise our FY22 core net profit forecast by 9.4% to RM144.9m, mainly to account for higher sales volume assumptions at both trading and manufacturing segments. FY23-24 forecasts, on the other hand, remain largely unchanged, pending further update with management.

Maintain BUY and TP of RM0.63. We maintain our BUY rating on HTVB, with unchanged TP of RM0.63 based on unchanged 7x CY2023 core EPS of 9.0 sen. We continue to like HTVB for its (i) healthy balance sheet, and (ii) multi-year growth potential in ESSB’s earnings, supported by its continuous efforts in enhancing cost efficiencies and major capacity expansion. At RM0.295, HTVB is trading at undemanding FY22-23 P/E of 3.3x, and current P/B of 0.41x.

Source: Hong Leong Investment Bank Research - 1 Jul 2022