HIAPTEK (5072) - =====$$ HIAPTEK $$======> lagger behind the steel rally

Hiap Teck Venture Berhad (HTVB) is one of the leading steel companies in Malaysia. The company was incorporated in 1993 and it is listed on Malaysia’s Stock Exchange (Bursa Malaysia) since 2003.
Main business:
Steel Trading
Hiap Teck Hardware Sdn Bhd is the trading arms of Hiap Teck Venture Berhad
Steel Pipes & Hollow Sections
Alpine Pipe Manufacturing Sdn Bhd is one of the major manufacturing and distribution arm
Scaffolding & Formwork
Huatraco Scaffold Sdn Bhd was incorporated in 1992 as a manufacturer of a wide range of quality steel
Integrated Steel Manufacturing
Eastern Steel Sdn Bhd, is a Joint Venture company between Hiap Teck Venture Berhad (HTVB)
Briliant Decade Transport Agency Sdn Bhd (BDTASB) owns a total of 30 units of trucks ranging


Quarter results:

The performance of the Group was mainly affected by the loss incurred by the jointly controlled entity (“JCE”) which amounted to RM99.22 million in FY2016. The loss at the JCE was principally due to depressed prices for its products, higher cost associated with the trial production and the continued weakness of the Ringgit against the US Dollar during the financial year. In line with the Group’s strategy to temporarily suspend the JCE’s trial production from October 2015 to minimize losses, the loss incurred by JCE in the 2H FY 2016 has been significantly reduced. The JCE regularly reviews the market conditions and related factors to determine the appropriate timing to resume production. The Group’s other business units reported a profit before tax of RM74.61 million in FY 2016 as compared to RM48.21 million (before impairment for investment of RM55 million) in FY 2015. The significantly better performance in FY 2016 can be attributed to higher average selling prices in the 2H of FY 2016, tight cost control and overall improvements in operational efficiencies.
Analysis on 2 latest QR: if you noticed that hiaptek keep having the share of loss of equity accounted investees and make the profit looks ugly.
Information about the loss. It is due to forex loss, it does not impact the cash flow.

As you can see the amount is getting reduced from 31 Oct 2016 to 0 in 30 April 2017. We can conclude that earning from Hiaptek would come back to origin which is around EPS 2 cents per quarter. In fact, last quarter of 2.48 cents should be able to maintain to next qr if the profit margin maintain the same. This qr contains 5m loss also. But it is not as bad as compare to previous quarter.

The increase of raw material of HRC might reduce hiaptek profit margin. But as a trading company, they should be able to pass the cost to customers.
Background about JCE and eastern steel:
Eastern Steel Sdn Bhd's is a 1.8 billion project for 1.5 million MT of production capacity- The Integrated Steel Mill Complex with land size of 1200 acres located in Teluk Kemamam, Terengganu, with Blast Furnace Project Plan as part of its upward integration plan which comprises: a Material Handling System, Coke Oven Plant, Sinter Plant, Blast Furnace Plant, Blast Furnace Top Pressure Recovery Turbine (BPRT), Blowing System, Iron Caster and Dry De-dusting System, Converter with Ladle Refining Furnace, Slab Continuous Casting Machine and Oxygen Making System would have an initial annual production capacity of 0.7 million MT of steel slab upon completion of our phase 1, stage 1 project. Upon overall project completion, being phase 1 and phase 2, would have a total annual capacity of about 3 million MT of steel.
Eastern Steel is a joint venture between Hiap Teck and Shougang Group of China. “Eastern Steel is financed entirely by shareholders. Eastern Steel doesn’t borrow money but Eastern Steel itself has a US dollar loan from shareholders. When we funded Eastern Steel, the foreign shareholder, Shougang (Shougang International [Singapore] Pte Ltd) lent in US dollar,” Foo said.
The steel industry has been hit hard in the past three years by a huge influx of cheap imports from Russia and China, forcing some factories to close shop and suspend operations.
The temporary suspension to minimise losses and the situation will be actively reviewed
Hiaptek always plan to revive the eastern steel production. In 2016, the cooperation agreement was between four parties, namely, Eastern Steel, Ansteel Group, China-based Shougang Group’s unit Orient Steel Investment Pte Ltd, and Chinaco Investment Pte Ltd had been formed.
Under the agreement, Ansteel will acquire Shougang’s 40% shareholding in Eastern Steel.
“The proposed transaction could expand Eastern Steel’s product range to include the production of hot-rolled coils and could potentially increase its production capacity to 1.5 million tonnes per annum,” it said. It is involved in the operation of a blast furnace, and the production and sale of steel slabs with an annual production capacity of 700,000 tonnes.
However, Eastern Steel Sdn Bhd, has decided not to extend the deadline of its cooperation agreement with Chinese steel products producer An Steel International Co Ltd, a unit of Angang Group Hong Kong Co Ltd.
The management will seek opportunity to revive the production. It would be a bonus to hiaptek.

HongLeong research:

Technical chart: