We are calm despite Lion Industries (LICB)'s net loss of RM25.9m for 1QFY13, which was mainly attributed to paper write-downs on investments. As the group's steel division saw a slightly deeper loss due to price/cost mismatch and it received a smaller contribution from its associate Parkson and the St. Mary project, overall it posted a core net loss of RM3.4m. Moving forward, we expect itsnon-core businesses to continue to support group results as the improvements in its steel unit may not be significant. We make no change to our estimates and maintain our NEUTRAL call, keeping our FV at RM1.14.
Smacked on both sides. LICB posted a net loss of RM25.9m for 1QFY13 as we expected, mainly attributed to another paper write-down amounting to RM22.6m as the market value of its stake in Lion Corp shrank further in 1QFY13. Nonetheless, the core net loss of RM3.4m after excluding a non-recurring loss is still worse than our and street projections. The weaker results can be due to the deeper loss from its core steel division which, like its peers, took a hit from the mismatch between the still-high raw materials cost and big drop in steel prices on a regular delivery time lag. These aside, the contribution from its retail associate, Parkson, and profit recognition from the St. Mary Residence JV also came in lower than we projected.
Immediate outlook muted. Meanwhile, we see limited recovery in local steel prices despite a rebound in international steel prices over the past weeks. This is in view of the fact that domestic long steel product prices had held steadier than international prices in the recent down cycle. The recent implementation of provisional measures in the steel industry is positive for major local wire rods producers such as LICB. The provisional anti-dumping duty, ranging from 0% to 33.62%, may deter non-genuine imports of wire rods but the overall impact may be limited as imports have subsided since the petition was submitted to the Government. Also, management is keeping mum on the new natural gas tariff for its hot briquetted iron (HBI) plant in Labuan as the previous long-term contract price expiredin October 2012 and it has signed a confidential agreement with a supplier. Hence, we had recently raised LICB's gas cost by 50% to USD4.50 per mmBtu (million metric British thermal units), which consequently lowers the contribution from the iron-making division.
Helping hand from non-core businesses. Meanwhile, we expect sturdy contribution from Parkson, especially in 2Q and 3Q, due to the upcoming festive season. Apart from that, building material trader Lion Forest and the St. Mary Residences JV project are also likely to generate constant group earnings, albeit minimal. Incorporating these, we are keeping our earnings estimate as the 1Q numbers are not too far from initial projections. As local steel counters are trading at a premium to their regional peers, we maintain NEUTRAL on LICB, with our FV unchanged at RM1.14.
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