The reform which involves swapping existing steel capacities from BF-BOF route to EAF route will likely result in more stable profitability 

by NURUL SUHAIDI / Pic Source: Hiap Teck Venture’s Facebook

HIAP Teck Venture Bhd’s core net profit in financial year 2022 (FY22) to FY24 is expected to expand by three-year compound annual growth rate of 6.5%, underpinned by sustained earnings contribution from its trading and manufacturing segments, coupled with higher earnings contribution from Eastern Steel Sdn Bhd, arising from higher production volume and better cost efficiencies (following the completion of coke oven plant in phases). 

Hiap Teck Venture has a 27.3% stake in Eastern Steel, a joint venture with Beijing Jianlong Heavy Industry Group Co Ltd, which is an upstream steelmaking plant with a production capacity for steel slabs and billets of 700,000 metric tonnes, Hong Leong Investment Bank Bhd (HLIB Research) stated in a report yesterday. 

“We see a multi-year growth potential in Eastern Steel’s earnings, underpinned by its continuous efforts in enhancing its cost efficiencies, which will result in lower production cost, hence allowing Eastern Steel 

to compete with its regional competitors on a level playing field. There is a major potential in capacity expansion at the blast furnace segment and in venturing into the production of hot rolled coil segment which is underinvested in Malaysia,” HLIB Research stated. 

It added that China’s ongoing decarbonisa

tion drive on the steel sector (which involves swapping existing steel capacities from blast furnace-basic oxygen furnace [BF-BOF] route to electric-arc furnace [EAF] route) will likely result in more stable profitability among steel players in the region. 

HLIB Research added Hiap Teck Venture has got a healthy balance sheet, and its net debt and net gearing ratio have been on a declining trend since FY19, mainly attributed to its improving financial performance and absence of major capital expenditure (capex) commitment. 

It is also one of the lowest geared compared to its peers in Malaysia. 

“Moving forward, we project Hiap Teck Venture’s net gearing to trend down further in coming years (on the back of stable operating cashflow and absence of major capex spending), which will likely result in a more generous dividend payout,” the investment bank added. 

The relocation of Hiap Teck Venture’s warehouses to the new location (expected in two to three years’ time) will allow it to crystallise value of the landbank given the sharp appreciation in land value over the years. 

HLIB Research has initiated coverage on Hiap Teck Venture with a ‘Buy’ rating and target price of 63 sen based on seven times calendar year 2023 core earnings per share of 9.1 sen, which offers an upside of 44% from its share price of 43.5 sen at close yesterday. 

Hiap Teck Venture is one of the largest steel players in Malaysia, primarily engaged in the manufacturing and distribution of steel pipes, hollow sections, scaffolding equipment and accessories, steel plates and other steel products.