by TMR / pic source htgrp.com.my

HIAP Teck Venture Bhd’s (HTVB) FY22 core net profit (CNP) of RM149.1m (+7.6%) came in within expectation, accounting for 97% of our estimate. Proposed final DPS of one sen. 

We cut our FY23-FY24 CNP forecasts by 64.7% and 36.2%, mainly to account for narrower spread assumptions at Eastern Steel Sdn Bhd (ESSB) and narrower margin assumptions at trading and manufacturing segments. Post downward revision in our earnings forecasts, we downgrade our rating on HTVB, with a lower TP of RM0.24 (from RM0.52 earlier) based on 7x revised CY2023 core EPS of 3.5 sen. 

Within expectation. Its 4QFY22 CNP of RM14.8m (-51.8% QoQ; -59.3% YoY) took FY22 CNP to RM149.1m (+7.6% YoY). The results came in within our expectation, accounting for 97% of our estimate. CNP of RM149.1m in FY22 was arrived after adjusting for (i) RM0.3m unrealised foreign-exchange gain, (ii) RM2.8m gain on disposal of personal protective equipment (PPE), (iii) RM20.3m write-down on inventories, and (iv) RM27.3m reversal of impairment loss on PPE at ESSB’s level. 

Dividend. Proposed final DPS of one sen (similar to FY21’s DPS), with date of entitlement and payment to be determined at a later date. 

QoQ. CNP fell by -51.8% to RM14.8m in 4QFY22, dragged mainly by lower sales volume and higher input costs for both trading and manufacturing segments, and losses incurred at 27.3%-owned joint venture (JV) (ESSB, as a result of mismatch between prices of key inputs and steel products). 

YoY. CNP fell by -59.3% to RM14.8m in 4QFY22, dragged mainly by higher input costs, which more than offset higher sales volume and average sell- ing price at both trading and manufacturing segments, and losses at JV. 

YTD. Despite a 46.3% increase in revenue (on the back of higher average selling price), FY22 CNP increased by a much smaller magnitude of 7.6% (to RM149.1m), due mainly to higher input costs. 

Outlook. Management is highly cautious on its coming quarter’s performance, on the back of the recent decline in steel prices and higher cost of inventories. 

Forecast. While the results were in line, we cut our FY23-FY24 CNP forecasts by 64.7% and 36.2%, mainly to account for narrower spread assumptions at ESSB (as the mismatch between prices of key steelmaking inputs and steel products will likely persist for a while) and narrower margin assumption at trading and manufacturing segments. 

Downgrade to ‘Hold’ with lower TP of RM0.24. Post downward revision in our earnings forecasts, we downgrade our rating on HTVB, with a lower TP of RM0.24 (from RM0.52 earlier) based on 7x revised CY23 core EPS of 3.5 sen. 

▶ Recommendation: Hold Target Price: RM0.24 by Hong Leong Investment Bank Bhd (Sept 29) 

• This article first appeared in The Malaysian Reserve weekly print edition.