Hiap  Teck  Venture  (HTVB)’s  FY13  net  earnings  were  within  our expectations  but  beat  consensus  estimates.  Despite  its  flat  revenue growth  due  to  low  ASPs,  its  profit  margin  was  boosted  by  the economies of  scales  from  higher sales  volume.  Going  forward, we  see positive prospects for HTVB when its new blast furnace plant kicks  off next year. Maintain Trading BUY and MYR0.66 FV.

Results spot on. HTVB’s FY13 net earnings of MYR24.3m (+47.30% y-o-y)  were  in  line  with  our  expectations  but  beat  street  estimates. However,  it  reported  lower  4QFY13  revenue  at  both  trading  and manufacturing  divisions,  with  sales  volume  at  the  trading  division relatively  flat  while  that  of  the  manufacturing  division  up  slightly.  FY13 revenue  dipped  0.8%  y-o-y  due  to  lower  average  selling  prices  (ASPs), but  that  was  partially  offset  by  higher  sales  volume  (+9%  y-o-y).  We believe  the  main  reason  for  the  y-o-y  jump  in  FY13  earnings  was  the absence of an inventory writedown in the current financial year vis-a-vis last year.   

Positive outlook. Going forward, we see positive prospects for HTVB as its  blast  furnace  plant,  which  is  scheduled  to  commence  operation  by 1H2014, is expected to start contributing positively to the group as soon as FY15F. Besides, the company is poised to benefit from the rollout of projects  under  the  Economic  Transformation  Programme  (ETP),  which plays an important role in supporting the local steel market.  

Risks.  We  believe  the  overall  outlook  for  the  steel  industry  remains challenging  as  it  is  highly  dependent  on  the  economic  recovery  in  the US,  Eurozone  and  China.  In  addition,  low  ASPs  and  rising  operating expenses may put pressure on its profit margin.

Maintain  Trading  BUY  and  MYR0.66  FV.  We  are  adjusting  our earnings  forecasts  in  anticipation  of  slower  revenue  growth  amid lacklustre  ASPs.  However,  we  expect  margin  to  improve,  driven  by economies  of  scale  from  higher  sales  volume.  Hence,  we  make  very minimal  changes  to  FY14F  and  FY15F  earnings  (both  <1%).  Maintain Trading BUY and MYR0.66 FV, based on 0.5x FY14F P/BV.

Source: RHB