HTVB’s  1QFY14  results  were  ahead  of  expectations,  mainly  due  to higher contributions  from  its manufacturing division and other income.We  have  identified  several  positive  factors  that  may  propel  the company’s  earnings  moving  forward.  Additionally,  the  electricity  tariff hike  will  have  a  minimal  impact  on  its  bottomline.  Maintain  BUY  and MYR0.97 FV unchanged.

• Better than expected. HTVB’s 1QFY14 core net earnings of MYR10.7m (+>100% y-o-y)  were  above  our  and street  estimates  –  reaching 31.3% of our full-year forecast  –  despite  posting  lower revenue. The strongerthan-expected net profit  was mainly buoyed by higher contributions  from its manufacturing division, which fetches better margins, as well as a rise in  other  income  owing  to  higher  interest  income  from  55%-owned Eastern Steel. Meanwhile, revenue fell on lower selling prices in 1QFY14 vs 1QFY13.
• Near-term  positive  drivers.  Some  positive  factors  that  could  propel HTVB’s  future  earnings  include:  i)  increasing  demand  for  water  pipes should the  water  pipe replacement projects kick-off,  ii)  rising  demand for structural  steel  from  local  infrastructure  projects,  iii)  US  anti-dumping duties  on  nine  oil  and  gas  pipe-exporting  countries  that  may  be  an opportunity  for  its  American Petroleum  Institute  (API)  pipes,  and  iv)  its trading arm’s margins  may  recover  on  reduced  dumping from overseas.Meanwhile, the impending  award of iron ore mining concessions in Bukit Besi, Terengganu, to Eastern Steel remain a bonus.
• Minimal impact from electricity tariff hike.  We believe that the recent electricity tariff hike will have a minimal impact on HTVB’s bottomline. As electricity  is  mainly used to power  machinery in  its  production lines, we think  the hike  will  increase  the  group’s  total  annual  production cost  by about  MYR1m. In  turn,  this will  pare down  HTVB’s  FY14F net profit by 2%, should it be unable to pass on the cost hike.
• Maintain BUY.  As  the  steel sector is a volatile industry,  we  are staying prudent  and  keeping  our earnings forecasts  unchanged at this juncture. We maintain our BUY  call and  MYR 0.97  FV,  derived  from 0.72x FY14F P/BV, which is -0.5 SD from the mean of its historical trading band.

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SWOT Analysis

Company Profile
Hiap Teck Venture (HTVB) is primarily involved in pipe manufacturing and the trading of general steel products.

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Source: RHB