Journey to Wealth
Lion Industries - Remains in the red but shows signs of recovery BUY
- Lion Industries Corp (Lion) remained in the red - albeit narrowed - recording a RM6.8mil in net losses for 2QFY13. This brings its cumulative net losses to RM32.7mil for 1HFY13.
- Nonetheless, we are putting our estimates UNDER REVIEW, pending a meeting with the management.
- Losses for the quarter were mainly contributed by the weak steel division, which suffered RM35.9mil in operating losses, and losses at the property development unit amounting to RM3.2mil.
- The main reason for the weak steel numbers were the continued tough operating environment where selling prices remained weak - at the low-end of RM2,000/tonne range, albeit inching up - although sales volume had picked up comparing to the preceding quarter.
- Nonetheless, high input costs - despite the weak global demand - at the high-end of US$300/tonne range exacerbated the situation.
- However, there are signs of recovery. Firstly, as we mentioned above, sales volume have picked up QoQ. Secondly, there is upside from the Malaysian government's decision to proceed with anti-dumping duties on imported wire rods from select countries. Also, we expect local steel demand to accelerate post elections.
- From a valuation standpoint, Lion is trading at a depressed FY13F P/B of 0.2x which is 1 standard deviation below its P/BV historical mean. The company may trade within range in the near term given the current sentiment but positive news from the Chinese market would push its valuations up.
- We maintain our BUY rating with our fair value kept at RM1.35/share, pegging a 10% discount to our FD SOP of RM1.50/share.
Source: AmeSecurities
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