Tong Herr Resources (THR) FY11 numbers came in marginallyabove our expectation, thanks to tax income in 4Q11. Full year revenue almostdoubled due to full year contribution from its newly acquired aluminiumextrusion business. While management have lined up some expansion plans to raise the plant capacity and efficiency, weprefer to not incorporate any additional contribution yet as  poor economic backdrop in  the  Eurozonemay dent prospect of its main stainless steel fastener market. With that, weare keeping our original estimates and NEUTRAL recommendation with fair valueof RM2.28. We value THR based on 0.85x FY12 BV.

Earnings beatexpectation.  THR's 4Q results camein marginally higher than our expectation by posting net profit of RM8.4m for4Q and make up RM36.9m for FY11. This was due to negative taxation of RM2.1m in4Q11 artificially lifting its bottomline, without which the company netearnings are largely in line with our original estimates.  That aside, THR's revenue in FY11 almostdoubled that of preceding year, mainly contributed by the newly acquiredaluminium subsidiaries. Again, we believe that their investment in aluminiumextrusion has proven to be a successful investment as it helps to boost both THR'stop and bottomline.  

Expansion plans inthe pipeline. THR board indicated in their result note that it is in the midstof finalizing its expansion plan for its fasteners segment in particular theThailand plant. Besides, The company also has expansion plan for theiraluminium extrusion business which we have stated in our previous report. Allin, we see these as positive moves as the company is moving on to increase thecapacity and efficiency to boost their earnings in the future. However, at thispoint we think that it is still too early to incorporate any potential upsidein our valuation before more concrete details are provided. Separately, webelieve that THR's venture in Vietnam still remains challenging and  has yet to see any significant progression.We shall incorporate the potential upside into our valuation only when theplant commences operation.

Maintain NEUTRAL.  We are positive of THR solid balance sheetand potential future earnings from its expansion plans. However, the pooreconomic backdrop in Eurozone,which is the company main export destination,prompted us to be  cautious  of the company's near term prospect. Havingsaid that, we prefer to maintain our earnings estimates and keep our NEUTRALrecommendation with fair value of RM2.28derived based on 0.85x FY12 BV.

Source: OSK188