Sino Hua-An posted a net loss of RM14.8m in 4Q, despiterevenue increasing 5.9% q-o-q and 8.5% y-o-y. The rise in revenue was mainlyattributed to higher selling prices and sales volume but  its 4Q bottom-line was dragged into the redby escalating raw material costs.  Apartfrom gloomy steel industry outlook, the company also faces persistent  structural problems inherent in China's steelindustry.  To date, we  still don't see any  reasons to reratethis company  and therefore, wemaintain  our  NEUTRAL call  with a FV of RM0.235 basedon 0.36x FY12 P/BV, which is -1 standard deviation of its historical tradingband.

Sinks into  the red.  Sino  Hua-An's posted  net losses of RM14.8m  and RM9.6m for 4QFY11  and full-yearFY11 respectively, coming in way  belowour estimates. Although revenue was maintained at a healthy level, growing 5.9%q-o-q and 8.5% y-o-y, the price increase of coking coal, which is the company'smain raw material, has outpaced that of metallurgical coke and hence, draggedSino Hua-An into  the  red. Although its byproducts' selling prices have increased generally,  this is still  not good enough to compensatefor the losses from its core business.

Persistent problems,fundamentals remain weak.  Thecompany  is facing  a tough situation, by virtue of its value chain  position between coal miners and steel mills. This causes Sino Hua-An to lose itsbargaining power when it comes negotiating raw material and product sellingprices alike.  To date, we have yet tosee Sino Hua-An making any progress to get itself out  of this tricky situation as it does not seemto be moving  either upstream  or downstream. Other than that,  China's unfavourable  industry structure for independent cokemanufacturers exacerbates Sino Hua-An's situation and near-term poor performance.All in all, we have yet to see any steps taken by Sino Hua-An to overcome thenegative factors that are affecting its outlook.

Maintain NEUTRAL.  We have always been  cautious  on Sino Hua-An's performance given thestructural problems faced by this company. For that reason, we have always peggedits valuation at a lower base, which is 0.37x P/BV or -1 standard deviation ofits historical trading band. In view of the challenging economic environmentand Sino HuaAn's persistent structural problems, we are trimming our earningsforecast for FY12 and FY13 substantially. At its current price, the company istrading 61% below its book value and we don't think any rerating for Sino Huaanis warranted, at least for now. Therefore, we maintain our NEUTRALrecommendation at a FV of RM0.235 based on 0.36x FY12 BV.

Source: OSK188