Hiap Teck Venture's (HTVB) 2QFY12 results were below our andconsensus estimates. Net profit was weaker q-o-q at RM1.6m (1QFY12: RM8.1m) butstronger y-o-y, while 1H net profit stood at RM9.7m (1HFY11: RM3.3m).The weak results are no cause for alarm as we had expected a soft performance in 2Q due to the festive seasons. We think the company may see a better 2HFY12 activities pick up. Although newson the iron ore concession has beenquiet for some time, we don't think that will affect HTVB's core operationsas this was supposed to be an unexpectedbonus anyway. We maintain our Trading BUY call, with a lower revised FV of RM0.74, as we lower the iron ore concession value-add factor to 10%from 20% in tandem with our house view.
Weaker asanticipated. HTVB reported a 2QFY12 net profit of RM1.6m (-80.3% q-o-q), whichis below our and street estimate estimates when annualized. Having said that, we are not surprised as wehad earlier anticipated HTVB's 2Q numbers to fall in the months whichexperienced festive seasons (Nov, Dec and Jan), during which businessactivities generally slow down. The lower production in the manufacturingdivision resulted in a higher cost of production, which further dampened theGroup's performance. Nevertheless, its overall 1H performance still lookspromising as the reported earnings were three times that in the same periodlast year.
A brighter 2HFY12 ahead. We believe HTVB's future prospects remain intact asthe local steel industry may see activities gather pace when more projectsunder the Tenth Malaysia Plan and Economic Transformation Programme are rolledout. Elsewhere, the continuous improvement in the company's API steel pipes making venture that fetches more robust margins and which exports 5CT pipes may seea pick-up, with orders expected to flow in after the festiveseasons. This further supports our view on a better 2H for HTVB.
Iron ore concessionmay materialize only later. It has been 3 months since Terengganu's MBannounced that an iron ore concession will be given to Eastern Steel during aground breaking ceremony in December last year. However, so far we have yet tosee the state government issue an official letter to this effect. Nonetheless,we are not too concerned about the delay in the concession awards because: (i) the company's BF plant is still underconstruction, and (ii) we believe that HTVB already has plans to source for iron ore to feed into itsBF plant and did not take into consideration the Bukit Besi concession when itventured into the BF plant project. As we mentioned earlier, the local iron oreconcession would be an unexpected bonus to Eastern Steel and/or HTVB.