Below expectations. The 4QFY12 net profit of RM0.2m brings HTVB's total FY12 earnings to RM15.6m, which was 37.3% below our forecasts and 44.3% lower than street estimates (by 44.3%). On a y-o-y basis, although total revenue was 6% higher
(trading division up 3%, manufacturing up 9%), the company's bottomline was -96.9% lower, mainly due to inventory write-downs amounting to RM12.5m. This aside, we also suspect that the anti-dumping duties imposed by the Australian government on certain hollow steel sections starting from 3 Jul 2012 may have also hurt HTVB's earnings.

FY13 will still be a challenging year. We think that HTVB's FY13 will continue to be tough given that: (i) the challenging business environment owing to weakening global steel prices and competitive local prices are likely to prevail in the near future, (ii) the
Australian government's anti-dumping duty on certain hollow steel sections, effective from 3 Jul 2012 to 2 Jul 2017, will definitely affect its export business, and (iii) the potentially lucrative income from the impending iron ore mine, which we believe is likely
to kick off concurrently with the commissioning of the company's blast furnace, could involve a long wait as the upstream venture's contributions are only expected to kick in no earlier than 2014. Although HTVB has ventured into a new business stream by
producing API standard steel pipes, the volume is still not high enough to make a significant contribution to the company.

Maintain NEUTRAL. Due to the lack of immediate catalysts and the difficult operating environment for all steel players due to the gloomy economy outlook, we are maintaining our Neutral recommendation for HTVB. In line with our steel sector-wide valuation of -
1.0 standard deviation of the stock's historical trading range, we derive a new Fair Value of RM0.56, up slightly from the previous FV of RM0.55, as we have now roll over to a 0.36x FY13 BV, plus a 10% iron ore DCF value.

Source: OSK