HLIB Research says low steel inventory in China, which will likely support near-term restocking, will help boost HTVB’s earnings prospects.
PETALING JAYA: Analysts are upbeat about Hiap Teck Venture Bhd
’s (HTVB) earnings outlook due to improving demand prospects for steel products.
Hong Leong Investment Bank (HLIB) Research said the improving demand prospects for steel products is evident by major steel producers’ recent move to raise selling prices, amid the cyclical low demand season.
Additionally, the research house said low steel inventory in China, which will likely support near-term restocking activities, will also help to boost HTVB’s earnings prospects.
“We anticipate HTVB’s performance to improve in its second quarter ending Jan 31, 2023 (2Q23), as lacklustre demand for steel products will likely be mitigated by lower raw key input prices and higher steel product prices,” HLIB Research noted in a report on the steel company yesterday.
HLIB Research said the lacklustre demand for steel products can be attributed to slower construction activities during the Chinese New Year month and rainy season.
“We anticipate HTVB’s earnings recovery momentum to pick up further from the second half of financial 2023 (FY23), supported by seasonally higher construction activities locally and implementation of stimulus plans in China.”
Over the long term, the research house expects HTVB’s earnings growth to be driven by the expansion plans at its 27.3%-owned unit, Eastern Steel Sdn Bhd (ESSB).
“The expansion plan will transform ESSB into an integrated steel producer. China’s policies to reform its steel sector will also result in more stable profitability among steel players in the region.”
The research house raised HTVB’s core net profit forecast for FY23 to FY25 by 16.1%, 14.6% and 16.1% respectively.
“This is mainly to account for higher earnings before interest and taxes margin assumptions at trading and downstream manufacturing segments, as well as marginally higher average selling price assumptions at ESSB.”
As such, HLIB is maintained a “buy” call on HTVB with a higher target price of 38 sen (from 33 sen earlier).
Risks to the call include a full blown global economy slowdown; hiccups in China’s stimulus plan implementation and economy reopening; and recovery in key steel input prices outpacing steel product prices.
HTVB reported a net loss of RM49.14mil on revenue of RM397.83mil in 1Q23. It attributed the losses to lower selling prices, high costs of inventories and the write-down of inventories to net realisable value.
Going forward, the company stated downside risks still remain, as the country is not spared from the external environment and is susceptible to weaker-than-expected global growth.
HTVB noted Malaysia is vulnerable to further escalation of geopolitical conflicts, supply chain disruptions and further monetary tightening.
“The growth in domestic steel demand is currently driven by private consumption. Major infrastructure projects have yet to be rolled out.
“But stability of the political landscape and more focus on the economy will spur construction activities and help boost multi-year demand for domestic steel,” it said in a filing with Bursa Malaysia.
