Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD
Research House: OSK
Hiap Teck Venture Bhd
(July 1, RM1.26)
Maintain neutral at RM1.29 with a revised target price of RM1.14 (from RM1.10): Hiap Teck's 9MFY10 reported net profit of RM38 million was within our earlier projection of RM51.6 million, coming in at 74% of our full-year forecast but was below consensus estimates. As per our earlier report, we had expected better 3Q results due to improving buying sentiment at end-February and early March.
Quarter-on-quarter, both top line and bottom line registered stronger numbers, improving by 15.2% and 326% respectively. Ebit (earnings before interest and tax) margins expanded from 3.4% to 8.7%. The company also benefited from cheaper inventory during the quarter as there was a mismatch in the prices of HRC, which was lower from November 2009 to January 2010, before the average selling prices of its products moved up in 3Q. The better performance in 3Q got another boost when customers held back on purchases due to the long weekends in 2Q.
Nonetheless, we are concerned over the outlook for 4Q and FY11 as the market appears to be unprepared for selling prices that are too high. The 'mismatch' between high material costs and lower ASPs may narrow Hiap Teck's margins in the medium term.
We understand that the new subsidiary is finalising the blast furnace project and is in the midst of getting quotations for the machineries, but do note that the substantial capital outlay ' as mentioned in an earlier report ' may potentially inflate its net gearing to 180.2%. Aside from that, the management has assured that operations will remain as usual with the emergence of a new shareholder and management.
We maintain our earnings estimates for FY10 and FY11 as we believe the mismatch in cost and revenue may hit the company in the medium term. Nevertheless, our target price has been revised from RM1.10 to RM1.14 as we roll over to FY11 EPS on seven times PER. Due to the limited upside on the stock, we maintain a neutral recommendation. ' OSK Research Sdn Bhd, July 1
This article appeared in The Edge Financial Daily, July 2, 2010.
Company Name: HIAP TECK VENTURE BHD
Research House: OSK
Hiap Teck Venture Bhd
(July 1, RM1.26)
Maintain neutral at RM1.29 with a revised target price of RM1.14 (from RM1.10): Hiap Teck's 9MFY10 reported net profit of RM38 million was within our earlier projection of RM51.6 million, coming in at 74% of our full-year forecast but was below consensus estimates. As per our earlier report, we had expected better 3Q results due to improving buying sentiment at end-February and early March.
Quarter-on-quarter, both top line and bottom line registered stronger numbers, improving by 15.2% and 326% respectively. Ebit (earnings before interest and tax) margins expanded from 3.4% to 8.7%. The company also benefited from cheaper inventory during the quarter as there was a mismatch in the prices of HRC, which was lower from November 2009 to January 2010, before the average selling prices of its products moved up in 3Q. The better performance in 3Q got another boost when customers held back on purchases due to the long weekends in 2Q.
Nonetheless, we are concerned over the outlook for 4Q and FY11 as the market appears to be unprepared for selling prices that are too high. The 'mismatch' between high material costs and lower ASPs may narrow Hiap Teck's margins in the medium term.
We understand that the new subsidiary is finalising the blast furnace project and is in the midst of getting quotations for the machineries, but do note that the substantial capital outlay ' as mentioned in an earlier report ' may potentially inflate its net gearing to 180.2%. Aside from that, the management has assured that operations will remain as usual with the emergence of a new shareholder and management.
We maintain our earnings estimates for FY10 and FY11 as we believe the mismatch in cost and revenue may hit the company in the medium term. Nevertheless, our target price has been revised from RM1.10 to RM1.14 as we roll over to FY11 EPS on seven times PER. Due to the limited upside on the stock, we maintain a neutral recommendation. ' OSK Research Sdn Bhd, July 1
This article appeared in The Edge Financial Daily, July 2, 2010.
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