Hiap Teck’s pipe-making and trading segments may still generate satisfactory net income. That said, its upstream operations may continue to suffer losses despite its decision to temporarily halt trial production as overheads are fixed. This, on top of our internal resource reallocation, leads us to cease coverage on the company. Our last recommendation for the stock was TRADING BUY with a MYR0.36 TP.

Mixed outlook. Hiap Teck Venture’s (Hiap Teck) existing trading and pipe manufacturing bsinesses are expected to perform reasonably well, thanks to improved public spending on infrastructure by the Government. However, ts investment in 55%-jointly owned Eastern Steel SB (ESSB)has dragged its financial performance. Meanwhile, we expect losses from ESSB to narrow, following its board’s decision to temporarily halt trial production in order to minimise losses. That said, we are unsure on the turning point, given the depressed slab steel market currently.

Untimely RCUIDS. Hiap Teck had earlier proposed a renounceable rights issue of up to MYR213.7m via 5-year 5% redeemable convertible unsecured Islamic debt securities (RCUIDS) at a 2:5 basis. The exercise is attached with a sweetener of 3:4 free warrants and 1:2 bonus shares detached with the subscription of the RCUIDS. However, a cash call amid a volatile market is usually not welcomed by investors. This has caused its share price to fall below its MYR0.50 par value since the announcement.

Ceasing coverage. The above factors, coupled with the reallocation ofour internal resources, lead us to cease coverage on the company. Our last recommendation for the stock was TRADING BUY with a TP of MYR0.36.