KUALA LUMPUR (Oct 14): Hiap Teck Venture Bhd (KL:HIAPTEK) is expected to face continued earnings challenges in the near term due to weak steel prices and high steel input costs, said Hong Leong Investment Bank (HLIB).
The weak performance expected in Hiap Teck’s upcoming first quarter ending Oct 31, 2024 (1QFY2025) is premised on further decline in steel prices in August and September 2024, HLIB said.
This is despite strong demand seen for steel products, fuelled by increased construction activity, HLIB said. Lower average selling prices (ASP) for the steel products will continue to squeeze profitability, it said.
"We lower our FY2025-FY2027 core net profit forecasts by -22.9%/-20.9%/-20.8%, mainly to account for lower earnings before interest and tax (ebit) margin assumptions for trading and downstream segments, as well as lower ASP assumptions for ESSB (27.3%-owned associate Eastern Steel Sdn Bhd),” the house added.
The group is already delaying the commissioning of its hot-rolled coil (HRC) plant from November to December 2024 “given the weak price sentiment”, HLIB said, although construction progress is on track.
HLIB slashed its target price to 42 sen, from 55 sen, although it maintained a “buy” call on the counter, citing long-term prospects in the company — namely cost efficiency in ESSB following the construction of auxiliary facilities, and the HRC plant completion which would boost capacity and product offerings for both local and overseas markets.
At time of writing, Hiap Teck’s share price was down half a sen or 1.45% at 34 sen, valuing the group at RM585.74 million.The counter is down 20% this year.
In 4QFY2024, Hiap Teck’s core net profit plunged 85% year-on-year (y-o-y) to RM9.5 million due to margin compression.
The performance of ESSB was also affected, with its contribution plummeting from RM41.3 million to RM7.5 million in the quarter, driven by lower steel prices and delays in shipment.