by M JAY SHEILA / pic source htgrp.com.my

SEVERAL encouraging developments in China, such as a government support package and relaxed Covid tracking rules, have prompted a local research house to turn more positive on steel player Hiap Teck Venture Bhd.

“While optimism arising from the development may not translate to actual steel demand so soon (due to seasonal factors), there are indicators which signal that the steel sector may soon be out of the woods,” the research house said in a report today.

Hong Leong Investment Bank Bhd (HLIB Research) believes Hiap Teck Venture’s first quarter 2023 (1Q23) earnings (due out by end of December) will likely weaken from 4Q22, due to high key input costs and lower steel prices, hence resulting in sharp deterioration in profitability, and depressed demand sentiment amid weak steel price trend and steel construction activities.

“Moving into 2Q23, while margin will likely recover (when inputs acquired at high costs are depleted), demand will remain weak in 2Q23 on seasonal factors,” it said.

HLIB Research has maintained earnings forecasts, but upgraded its rating to ‘Buy’ with a higher target price of 33 sen, following the roll-forward of valuation base year (from calendar year 2023 [CY23] to financial year July 2024 [FY07/24]), based on seven times FY07/24 core earnings per share (EPS) of 4.8 sen.

The Port Klang based company is trading at FY23-FY25 price to earnings ratio (P/E) of 10.3 times, 5.6 times and 5.2 times, respectively.

At 11.03am, Hiap Teck Venture stood at 26 sen, giving it a market capitalisation of RM444.3 million.