Top Story : Hiap Teck – Focus remains on domestic demand
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♦ Despite demand and margins for pipes in the domestic market have improved significantly, Hiap Teck’s capacity utilisation is currently constrained by inconsistent HRC supply domestically. To ensure consistent HRC supply, Hiap Teck is now planning to secure local HRC by giving advance payment to the Megasteel.
♦ Management indicates that export demand is likely to remain weak in the near term, as:
1) Demand in the US market has yet to gain traction; and
2) The ongoing investigation by the Australian government into the imports of steel pipes from Malaysia will result in Australian stockists staying away.
♦ Management believes that there will be a few more months (likely to involve a few more rounds of technical audits) before Hiap Teck can become the approved vendor to MITCO for high-grade ERW pipes, given the stringent quality control required as well as the company’s lack of experience for these pipes.
♦ Management indicated construction of the blast furnace would start by end-2010 and complete by 2013.
♦ We are lowering our FY07/10-12 net profit forecasts by 5.5-6.7% p.a., to reflect higher interest expense arising from its RM110m investment into a 55% stake in Eastern Steel.
♦ Fair value is lowered by 6.7% from RM1.80 to RM1.68 based on 9x revised CY10 EPS of 18.7 sen.
RHB Equity 360° - 6 May 2010 (Hiap Teck, Construction, Unisem, Faber; Technical: Evergreen)
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