HTVB’s 1HFY14 core net profit came in within our expectations  despite lower  revenue.  This  was  due  to  its  trading  division’s  lower  selling prices.  The  net  profit  improvement  was  mainly  buoyed  by  higher contributions from its manufacturing division and other income. There are  several  positive  factors  that  may  propel  HTVB’s  earnings  moving forward. Maintain BUY and MYR0.97 FV unchanged.

• Results within expectation.  We deem  Hiap Teck Ventures  (HTVB)’s MYR15.6m  1HFY14 core net earnings  (+>100% y-o-y)  in line with  our estimates – reaching 46% of our full-year forecasts. This was despite its trading  division  posting  lower  revenue  on  lower  selling  prices.  The improved bottomline 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  proceeds  from  55%-owned Eastern Steel  SB.  It  is worth noting that the  pre-tax profit  margin of its manufacturing division has improved to 8.5% in 1HFY14  vs  1HFY13’s 1.4%.
• Core  business  remains  intact.  HTVB’s  core  business  (before contribution from associates) actually  grew strongly,  with  pre-tax profit up  by  33.3%  q-o-q  on  improved  earnings  from  its  manufacturing division. The overall group performance was mainly dragged by share of losses in Eastern Steel SB on unrealised forex losses.
• 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  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 SB remains a bonus.
• Maintain  BUY.  We  keep  our  earnings  forecasts  unchanged  at  this juncture  and  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.

Financial Exhibits

SWOT Analysis

Company Profile

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

Recommendation Chart

Source: RHB