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Tong Herr - Awaiting Better Days

kiasutrader
Publish date: Thu, 31 Jan 2013, 10:03 AM
We  are  ceasing  coverage  on  Tong  Herr  Resources  (THR)  due  to  internal  resourcereallocation.  We  think  the  company  may  still  be  facing  challenging  operating conditions due to sluggish demand, no thanks to the weak recovery in the European and  US  economies.  That  the  European  Commission  has  terminated  its  probe  into possible  circumvention  of  its  anti-dumping  measures  may  be  positive  for  THR  but demand is still the key factor. Our last call for THR was SELL with FV of RM1.56. 
 
Demand  remains  sluggish.  Against  the  backdrop  of  slow  recovery  and  uncertainties  in both  the  Eurozone  and  the  US  economy,  demand for THR's product  has  remained sluggish as these markets are its largest revenue contributors. Apart from that, the global economy has been fragile while the prevailing uncertainties have further sapped demand.  
 
Termination  of  investigation  looks  positive  but  demand  is  still  key.  The  European Commission  had  on  15  Jan  2013  proposed  to  terminate  investigations  into  possible circumvention of anti-dumping measures in accordance with Regulation No. 2/2012 for the imports of certain stainless steel fasteners and parts thereof consigned from Malaysia and Thailand. We believe this latest development will have a positive effect on THR's sales to Europe  and  boost  the  contribution  from  that  region.  However,  we  think  that  a  pick-up  in demand is still the key for the company to turn around. 
 
Outlook still gloomy. We continue to believe that the company has a solid foundation and strong  balance  sheet  but  macro  factors  are  affecting  its  earnings  power.  As  we  have highlighted earlier, we think that THR's profit visibility  remains  murky  and  its  outlook continues  to  be  fraught  with  challenges.  We  had  earlier  revised  downwards  THR's earnings forecasts significantly and downgraded the counter to SELL.   
 
Ceasing  coverage  on  THR.  We  are  ceasing  coverage  on  Tong  Herr  Resources  due  to internal  resource  reallocation,  with  our  last  call  for  the  company  being  a  SELL,  with  FV standing at RM1.56.

Source: OSK
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