We are maintaining our BUYrecommendation on Lion Industries Corp (LICB) with our fair value lowered to RM1.90/share, based on a 10% discount to ourrevised sum-of-parts value of RM2.06/share.  

LICB reported 1HFY12 earnings of RM35mil (-72% YoY) aftergenerating only RM7mil (-75% QoQ) in 2QFY12. This was despite recording ahealthy YoY turnover growth of 36%.

This came below our and street estimates, covering only 18%and 29% of the respective full-year forecasts. The figures show that whilesteel demand was decent, earnings were affected by high feedstock costs andalso subdued selling prices of steel products. 

We have therefore slashed our earnings forecast for FY12F by63% to RM69mil as its earnings will be impacted by the sustained high inputcosts and weak selling prices for its products ' underpinned by supplydisruption and economic turmoil in Europe, coupled with weaker demand inChina. 

However, we are expecting a strong surge in earnings ' RM190miland RM294mil for FY13F and FY14F, respectively, to be underpinned by demandrecovery and stronger pricing trends. We have assumed the average selling priceto be between RM2,300/tonne and RM2,400/tonne. Its 17%-associate ParksonHoldings will be a key contributor to income as well ' accounting for 40% of70% of pre-tax profit in FY13F and FY14F. LICB should be a direct beneficiaryof the acceleration of key infrastructure projects in Malaysia, particularlythe Klang Valley MRT. Our strong conviction is supported by the group's largestmarket share in the supply of local steel bar (32%) and about 40% in the wirerod segment.

Our checks revealed that some 500,000 tonnes of steel productswill be required for the SBK line alone. This accounts for about 9% of theannual rolling capacity of the five major steel millers in Malaysia.

There is further upside as there are other key infrastructureprojects such as the West Coast Expressway, KLIFD, RRIM re-development, andGemas-JB double tracking that will provide a massive boost to steel demand inthe mid-term. 

Another plus point is that LICB is currently trading at an attractiveCY13F PE of 5x.