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PP 7767/09/2010(025354)

RHB Research2010
1 October
Corporate Highlights Institute Sdn Bhd

A member of the
RHB Banking Group
Company No: 233327 -M

R e su lts N ot e
1 October 2010

Hiap Teck Venture Share Price
Fair Value
FY07/10 Results Boosted By Better Margins Recom : Outperform

Table 1 : Investment Statistics (HIAPTEK; Code: 5072) Bloomberg: HTVB MK

Net Core EPS Net
FYE Turnover profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE GDY
July (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009a 1,159.3 43.4 13.3 5.6 -88.2 23.5 - 0.8 0.7 3.1 0.8
2010a 1,065.3 50.7 15.7 15.7 >100 8.3 16.5 0.7 1.1 6.9 1.5
2011f 1,692.2 52.5 16.0 16.0 2.0 8.2 18.3 0.7 1.2 8.1 1.9
2012f 1,793.9 54.7 16.7 16.7 4.1 7.8 21.0 0.6 1.1 7.8 1.9
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Above expectations. FY07/10 net profit beat our forecast by 21%, but

was in line with the consensus. We believe the variance against our forecast
In Line
came largely from the better-than-expected margins and lower finance Below
Issued Capital (m shares) 327.4
♦ Yoy. Despite an 8.1% drop in topline to RM1.07bn as a result of lower Market Cap(RMm) 363.4
demand from both local and international markets, Hiap Teck still managed Daily Trading Vol (m shs) 0.5
52wk Price Range (RM) 1.11 – 1.57
to record a 16.5% rise in net profit from RM43.4m in FY07/09 to RM50.7m
Major Shareholders: (%)
in FY07/10. This was mainly driven by improvement in margins and lower
TS Law Investments 27.2
finance costs. KHL S/B 7.7
Lembaga Tabung Haji 6.6
♦ Qoq. 4QFY07/10 revenue and net profit declined by 18.4% and 33.0%
respectively, mainly due to: 1) Lower sales volume; and 2) A drop in FYE Jul FY11 FY12
operating margins (7.5% in 4QFY07/10 vs. 9.0% in 3QFY07/10). EPS Revision (%) 6.5 7.1
Var to Cons (%) (12.6) (20.5)

♦ Favourable outlook. The near-term outlook of steel products in the PE Band Chart
international market is favourable as steel consumption is seasonally
stronger in 4Q10. Concerns on overcapacity in the steel sector have eased
PER = 16x
following the recent Chinese government’s measures to shut down PER = 12x
PER = 8x
inefficient steel mills in China and cut power supply to steel mills.

♦ Risks. The risks include: (1) Oversupply in China that results in dumping
activities by Chinese steel producers in the international market; and (2)
Steep contraction in global steel consumption that will weigh down on
international steel prices. Relative Performance To FBM KLCI

♦ Forecasts. We are raising our FY07/11-12 net profit forecasts by 6.5-7.1% Hiap Teck

to RM52.5m and RM54.7m respectively to reflect the higher margins and

lower finance costs.
♦ Investment case. Correspondingly, our indicative fair value for Hiap Teck
has been raised to RM1.63 (from RM1.51), based on 10x revised CY2011
EPS of 16.3 sen. Upgrade to Outperform (from Market Perform) as
valuations have become more attractive.
Joshua CY Ng
(603) 92802158
Please read important disclosures at the end of this report.

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Table 2: Earnings Review (YoY Cumulative)
FYE July 2009 2010 % YoY Observations/ Comments
(RMm) 12M 12M Chg
Turnover 1,159.3 1,065.3 -8.1 Reduced sales as a result of lower demand both locally and
Operating profit 49.0 80.9 65.2 Boosted by: 1) margin expansion arising from input costs; and 2) the
absence of inventory writedown and foreign exchange loss.
Finance costs -17.4 -13.3 -23.8 Lower financing costs
Pretax profit 31.6 67.7 >100 Boosted further by lower finance costs.
Taxation 11.8 -17.1 >(100) See effective tax rate
Net profit 43.4 50.7 16.5 Filtered down from pretax profit.
EPS (sen) 13.5 15.7 17.0

Operating margin (%) 4.2 7.6 3.4 pts

Pretax margin (%) 2.7 6.4 3.7 pts
Net profit margin (%) 3.7 4.7 1.0 pt
Effective tax rate (%) -37.4 25.3 62.7 pts Effective tax rate was fairly consistent with Malaysia’s statutory tax rate.

Table 3: Earnings Review (QoQ)

FYE Jul 2010 2010 2010 2010 % QoQ Observations/ Comments
(RMm) 1Q 2Q 3Q 4Q Chg
Turnover 279.6 251.4 289.6 244.6 -18.4 Lower sales volume.
Operating profit/(loss) 26.5 10.2 25.9 18.2 -42.1 Filtered down from revenue and also lower
Finance costs -2.9 -3.2 -3.4 -3.8 11.5 Net debt increased to RM449.2m from
Pretax profit/(loss) 23.6 7.1 22.6 14.4 -56.3 Filtered down from operating profit.
Taxation -6.4 -3.1 -5.7 -1.9 >100
Net profit/(loss) 17.2 4.0 16.9 12.7 -33.0 Filtered down from pretax profit.
EPS (sen) 5.3 1.2 5.2 3.9 -33.0

Operating margin (%) 9.5 4.1 9.0 7.5 -1.5 pts

Pretax margin (%) 8.4 2.8 7.8 5.9 -1.9 pts
Net profit margin (%) 6.1 1.6 5.8 5.2 -0.6 pt
Effective tax rate (%) 27.1 44.2 25.2 13.3 -11.9 pts

Table 4: Earnings Forecasts Table 5: Forecast Assumptions

FYE Jul (RMm) FY09A FY10A FY11F FY12F FYE Jul FY11F FY12F

Turnover 1,159.3 1,065.3 1,692.2 1,793.9 Total capacity ('000 mt) 660.0 660.0
Turnover growth (%) -30.2 -8.1 11.9 6.0 Total production volume ('000 mt) 330.0 440.0
Total utilisation rate (%) 66.7 69.7
EBITDA 72.8 104.7 133.7 139.0
EBITDA margin (%) 6.3 9.8 7.9 7.7

Depreciation -23.8 -23.8 -20.1 -20.1

Net Interest -17.4 -13.3 -32.7 -34.5

Pretax Profit 31.6 67.7 80.9 84.4

Tax 11.8 -17.1 -28.4 -29.7
Minorities 0.2 0.2 0.0 0.0
Net Profit 43.5 50.7 52.5 54.7
Source: Company data, RHBRI estimates


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