Monday, December 5, 2011

OSK Research upgrades Hiap Teck Ventures to Neutral, FV 80 sen

KUALA LUMPUR (Dec 5): OSK Research has upgraded HIAP TECK VENTURE BHD [] (HTVB) to Neutral with a fair value of 80 sen.

It said on Monday that HTVB shareholders have approved the cash call exercise for its 55% owned subsidiary, Eastern Steel's blast furnace (BF) project.

Eastern Steel has appointed China Shougang International Trade and Engineering Corporation (Shougang) as its main contractor for the BF. Shougang also show its commitment to the BF project by acquiring 40% of Eastern Steel's equity stake and 10% stake in HTVB.

'Although we think that Eastern Steel will not face much problem in selling its slabs in the first phase to local steel plate mills, we reckon there is an investment risk in a longer term when other new regional casters may ramp up their production,' it said.

OSK Research says the Menteri Besar of Terengganu might announce on Monday during its BF plant ground breaking that the state government is ready to consent to Eastern Steel for its iron ore mining proposal, similar to Perwaja Holdings during their iron ore pelletisation plant ground breaking ceremony.

'We now value HTVB based on -1 standard deviation of its historical trading range at 0.5 times FY12 BV translates into a higher FV of 80 sen. Thus, we upgrade the company to NEUTRAL.

'If our postulation that it may win a portion of the Bukit Besi iron ore concession is indeed correct, a potential valuation re-rating will materialise as the blue-sky DCF for this mining concession is worth RM708 million,' it said.

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