‘Worst may soon be over for Hiap Teck’
KUCHING: Hiap Teck Venture Bhd’s (Hiap Teck) prospects may be turning for the better with several positive developments in China expected to bode well for the group’s growth, analysts observed.
In a report, the research team at Hong Leong Investment Bank Bha (HLIB Research) said: “Several positive developments in China (which include easing Covid tracking rules, and government support package) has prompted us to turn more positive on Hiap Teck.”
It pointed out that these developments include the easing of Covid tracking rules, which indicates the Chinese government’s intention to move towards reopening the economy and adds more certainty to the implementation of its previously announced stimulus plan, and announcement of government support package (which include, amongst others, requiring banks to roll over their loans to the property sector, providing builders with more time to complete unfinished projects, which is aimed at reviving the property sector in China.
“While the abovementioned developments may not translate to actual steel demand so soon (as winter season typically slows construction activities and demand for steel in China), there are indicators which signal that the steel sector may soon be out of the woods.
“These include low inventory levels of iron ore and steel in China, which will likely support near term restocking activities, and relatively low crude steel output in China,” HLIB Research said.
On Hiap Teck’s upcoming 1QFY23 results, the research team believe that its performance will likely weaken from 4QFY22, due to high key input costs and lower steel prices, hence resulting in sharp deterioration in profitability, and depressed demand sentiment amidst weak steel price trend and steel construction activities.
“Moving into 2QFY23, while margin will likely recover (when inputs acquired at high costs are depleted), demand will remain weak in 2QFY23 on seasonal factor,” it said.
All in, HLIB Research upgraded its call on the stock to ‘buy’.