HTVB’s FY22 core net profit of RM149.1m (+7.6%) came in within expectation, accounting for 97% of our estimate. Proposed final DPS of 1 sen. We cut our FY23-24 core net profit forecasts by 64.7% and 36.2%, mainly to account for narrower spread assumptions at ESSB and narrower margin assumption at trading and manufacturing segments. Post downward revision in our earnings forecasts, we downgrade our rating on HTVB, with a lower TP of RM0.24 (from RM0.52 earlier) based on 7x revised CY2023 core EPS of 3.5 sen.

Within expectation. 4QFY22 core net profit of RM14.8m (-51.8% QoQ; -59.3% YoY) took FY22 core net profit to RM149.1m (+7.6% YoY). The results came in within our expectation, accounting for 97% of our estimate. Core net profit of RM149.1m in FY22 was arrived after adjusting for (i) RM0.3m unrealised forex gain, (ii) RM2.8m gain on disposal of PPE, (iii) RM20.3m write-down on inventories, and (iv) RM27.3m reversal of impairment loss on PPE at ESSB’s level.

Dividend. Proposed final DPS of 1 sen (similar to FY21’s DPS), with date of entitlement and payment to be determined at a later date.

QoQ. Core net profit fell by -51.8% to RM14.8m in 4QFY22, dragged mainly by lower sales volume and higher input costs for both trading and manufacturing segments, and losses incurred at 27.3%-owned JV (ESSB, as a result of mismatch between prices of key inputs and steel products).

YoY. Core net profit fell by -59.3% to RM14.8m in 4QFY22, dragged mainly by higher input costs, which more than offset higher sales volume and average selling price at both trading and manufacturing segments, and losses at JV.

YTD. Despite a 46.3% increase in revenue (on the back of higher average selling price), FY22 core net profit increased by a much smaller magnitude of 7.6% (to RM149.1m), due mainly to higher input costs.

Outlook. Management is highly cautious on its coming quarter’s performance, on the back of the recent decline in steel prices and higher cost of inventories.

Forecast. While the results were inline, we cut our FY23-24 core net profit forecasts by 64.7% and 36.2%, mainly to account for narrower spread assumptions at ESSB (as the mismatch between prices of key steelmaking inputs and steel products will likely persist for a while) and narrower margin assumption at trading and manufacturing segments.

Downgrade to HOLD with lower TP of RM0.24. Post downward revision in our earnings forecasts, we downgrade our rating on HTVB, with a lower TP of RM0.24 (from RM0.52 earlier) based on 7x revised CY2023 core EPS of 3.5 sen.

Source: Hong Leong Investment Bank Research - 30 Sept 2022