KUALA LUMPUR (Feb 2): RHB Research Institute has upgraded Hiap Teck Ventures to market perform.
It said on Thursday that it was rationalising its valuation method in order to better reflect the recent cash call and investment in the blast furnace project that is not likely to contribute to Hiap Teck’s earnings within the next one to two years.
“Indicative fair value is adjusted to 64 sen (from 70 sen) based on 0.5 times book value of RM1.28 (post-rights issue). Upgrade to Market Perform,” it said.
RHB Research said it believes Hiap Teck’s manufacturing division will continue to be weak due to lacklustre domestic demand in the absence of significant water-related projects. This is evidenced by its low capacity utilisation rate of 50%.
“Demand for steel slabs produced by Eastern Steel is not likely to be an issue as there is a ready buyer. We estimate that Phase 1 of the blast furnace project could contribute roughly RM35-46m to Hiap Teck’s FY07/14 net profit,” it said.
The research house said that captive raw material from securing iron ore mining concession will transform Hiap Teck into an integrated steel producer, although actual award of the mining concession could take some time.
“Our FY07/12-14 net profit forecasts are raised by 12%-28%, having reflected interest savings arising from the private placement and rights proceeds,” it said.
It said on Thursday that it was rationalising its valuation method in order to better reflect the recent cash call and investment in the blast furnace project that is not likely to contribute to Hiap Teck’s earnings within the next one to two years.
“Indicative fair value is adjusted to 64 sen (from 70 sen) based on 0.5 times book value of RM1.28 (post-rights issue). Upgrade to Market Perform,” it said.
RHB Research said it believes Hiap Teck’s manufacturing division will continue to be weak due to lacklustre domestic demand in the absence of significant water-related projects. This is evidenced by its low capacity utilisation rate of 50%.
“Demand for steel slabs produced by Eastern Steel is not likely to be an issue as there is a ready buyer. We estimate that Phase 1 of the blast furnace project could contribute roughly RM35-46m to Hiap Teck’s FY07/14 net profit,” it said.
The research house said that captive raw material from securing iron ore mining concession will transform Hiap Teck into an integrated steel producer, although actual award of the mining concession could take some time.
“Our FY07/12-14 net profit forecasts are raised by 12%-28%, having reflected interest savings arising from the private placement and rights proceeds,” it said.
