We kept our NEUTRAL rating on Hiap Teck but cut our TP to MYR0.40 (3.6% downside), reflecting a FY16F (Jul) P/BV of 0.3x (-2SD from its 5-year trading range). While its pipe-making and trading businesses maygenerate satisfactory net income, earnings could be weighed down by start-up losses from Eastern Steel SB. Furthermore, we deem its fundraising via RCUIDS being untimely due to poor market conditions.

Lower loss in 3Q, but... Although Hiap Teck Venture (Hiap Teck) posted a smaller loss of MYR5.2m in 3QFY15, its cumulative 9MFY15loss of MYR8.4m was below our and consensus projections. 55%-owned Eastern Steel SB continued to drag numbers, booking a MYR12.5m loss in 3QFY15 on extended higher start-up costs. Meanwhile, its trading division recorded a 9.6% drop in EBITDA although revenue was up 7.6%, both on a QoQ basis. Sales from its manufacturing division picked up 14.9% QoQ, but EBITDA shrank 27.9% QoQ on provisions made for a loss of inventory value.

Untimely fund-raising via RCUIDS. Hiap Teck had just proposed a renounceable rights issue of up to RM213.7m via 5-year 5% redeemable convertible unsecured Islamic debt securities (RCUIDS) – at 100% of its nominal value (MYR0.50) – on a 2:5 basis. The exercise is attached with the undertaking by its major shareholder to subscribe in full its entitlement and applying to the excess of not less than MYR37.5m in nominal value, as well as sweetener of 3:4 free warrants and 1:2 bonus shares detached with the subscription of the RCUIDS. However, equityraising during weak market conditions is not welcomed by investors.

Maintain NEUTRAL, TP cut to MYR0.40. Pipe demand in the domestic market will likely stay weak– especially since the water deal in Selangor has come to another impasse. Furthermore, we expect further start-up losses from Eastern Steel SB. Therefore, we cut our earnings estimateto a loss in FY15 and trim our FY16/FY17 projections by 24.8%/17.0% respectively. We also trim our valuation to 0.3x FY16F P/BV, which is -2SD (from -1SD) of its 5-year P/BV trading range. Our TP, thus, decreases to MYR0.40 (from MYR0.54), implying P/Es of 10.5x/6.5x for FY16/FY17 – which is fair, as those numbers have not accounted for the potential dilution from the fund-raising. Reiterate NEUTRAL