PERH’s 1HFY13 net loss of MYR92.6m was another letdown as we had expected  losses  to  narrow  after  1Q.  The  commissioning  of  its  new concentration and pelletization plant offers a new income stream while the  weak  MYR  favours  exports.  However,  an  effective  restructuring remains  crucial  to  its  turnaround.  We  cut  our  estimates,  lowering  our FV to MYR0.33 (from MYR0.47), pegged to 0.72x FY14F P/BV. NEUTRAL. 
 
- Another  miserable  quarter.  Perwaja  (PERH)  posted  net  loss  of MYR74,1m  in  1QFY13,  widening  its  1H  losses  to  MYR92.6m,  way deeper  than  our  estimates.  Management  blamed  the  poor  results  to weaker selling prices and higher costs for the annual maintenance of its direct reduced iron (DRI) plant.

- Restructuring crucial. PERH is engaging its financial lenders and major creditors  to  undertake  a  restructuring  exercise.  Petronas  and  Tenaga Nasional  (TNB  MK;  BUY,  FV:  MYR10.45)  have  served  various  writ  of summons  to  PERH,  claiming  a  combined  sum  of  >MYR200m  on  its outstanding  utilities  bills.  While  the  commissioning  of  its  concentration and  pelletization  plant  may  improve  its  profitability  going  forward,  an effective restructuring remains crucial to turn the company around.  

- Growing  export  sales.  The  sudden  weakening  of  the  MYR  may  be timely to help PERH improve its export sales profitability. Among others, PERH  can  now  export  its  billets  and  DRI  stockpiled  prior  to  the weakening  of  the  MYR  at  better  margins.  Apart  from  that,  the  higher MYR  proceeds  from  exports  may  boost  the  profitability  of  its  iron  ore concentrate and pellets upon plant commission.

- Maintain NEUTRAL, lower MYR0.33 FV. Meanwhile, we expect losses to extend into 2HFY13. While an effective restructuring coupled with the commissioning  of  its  concentration  and  pelletization  plant  may  push PERH  back  into  the  black  in  FY14,  it  will  likely  be  below  our  initial expectations. Thus, we are revising down our estimates. As the stock is currently  trading  at  its  lowest  level  since  listing,  we  are  keeping  our NEUTRAL  rating  but  lowering  our  FV  to  MYR0.33  (from  MYR0.47), based on 0.72x FY14 P/BV or mean of its historical trading range.

Source: RHB