Stock Name: HUAAN
Company Name: SINO HUA-AN INTERNATIONAL BHD
Company Name: SINO HUA-AN INTERNATIONAL BHD
| Research House: OSK | Price Call: HOLD | Target Price: 0.235 |
Sino Hua-An posted a net loss of RM14.8m in 4Q, despiterevenue increasing 5.9% q-o-q and 8.5% y-o-y. The rise in revenue was mainlyattributed to higher selling prices and sales volume but its 4Q bottom-line was dragged into the redby escalating raw material costs. Apartfrom gloomy steel industry outlook, the company also faces persistent structural problems inherent in China's steelindustry. To date, we still don't see any reasons to reratethis company and therefore, wemaintain our NEUTRAL call with a FV of RM0.235 basedon 0.36x FY12 P/BV, which is -1 standard deviation of its historical tradingband.
Sinks into the red. Sino Hua-An's posted net losses of RM14.8m and RM9.6m for 4QFY11 and full-yearFY11 respectively, coming in way belowour estimates. Although revenue was maintained at a healthy level, growing 5.9%q-o-q and 8.5% y-o-y, the price increase of coking coal, which is the company'smain raw material, has outpaced that of metallurgical coke and hence, draggedSino Hua-An into the red. Although its byproducts' selling prices have increased generally, this is still not good enough to compensatefor the losses from its core business.
Persistent problems,fundamentals remain weak. Thecompany is facing a tough situation, by virtue of its value chain position between coal miners and steel mills. This causes Sino Hua-An to lose itsbargaining power when it comes negotiating raw material and product sellingprices alike. To date, we have yet tosee Sino Hua-An making any progress to get itself out of this tricky situation as it does not seemto be moving either upstream or downstream. Other than that, China's unfavourable industry structure for independent cokemanufacturers exacerbates Sino Hua-An's situation and near-term poor performance.All in all, we have yet to see any steps taken by Sino Hua-An to overcome thenegative factors that are affecting its outlook.
Maintain NEUTRAL. We have always been cautious on Sino Hua-An's performance given thestructural problems faced by this company. For that reason, we have always peggedits valuation at a lower base, which is 0.37x P/BV or -1 standard deviation ofits historical trading band. In view of the challenging economic environmentand Sino HuaAn's persistent structural problems, we are trimming our earningsforecast for FY12 and FY13 substantially. At its current price, the company istrading 61% below its book value and we don't think any rerating for Sino Huaanis warranted, at least for now. Therefore, we maintain our NEUTRALrecommendation at a FV of RM0.235 based on 0.36x FY12 BV.
Source: OSK188
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