Friday, August 6

Lion Industries FY13 contributions to come from non-core items

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KUCHING: Lion Industries Corporation Bhd (Lion Industries) is set to see sturdy contribution from its non-core businesses in financial year 2013 (FY13) as its steel division continues to be plagued by a price/cost mismatch.

“We expect Lion Industries to report a net loss at the start of FY13, attributable to another paper write-down as the market value of its stake in Lion Corporation shrinks further in the first quarter (1QFY13),” OSK Research Sdn Bhd (OSK Research) said in its research report.

The research house expected Lion Industries to be in the red for its core steel division, like its peers, as there had been a mismatch between the still-high raw materials cost and a greater drop in steel prices on regular delivery time lag.

However, a small profit had been projected by OSK Research, to be contributed by its business operation, thanks to the steady performance of Lion Industries’ retail associate, Parkson, as well as the tail-end profit recognition from St Mary Residence joint venture project.

“We see limited recovery in local steel process despite a rebound in international steel prices over the past few weeks, in view of the fact that domestic long steel product prices have held steadier than international prices in the recent down cycle.”

The research firm took a positive stance on the recent implementation of provisional measures in the steel industry.

It believed that the provisional anti-dumping duty, ranging from zero to 33.62 per cent, might deter non-genuine imports of wire rods.

However the overall impact might be limited, seeing that imports had subsided since the petition was submitted to the government.

“Management is also keeping mum on the new natural gas tariff for its hot briquetted iron (HBI) plant in Labuan. As the previous long-term contract price expired last month, it has signed a confidential agreement with a supplier,” OSK Research noted.

IT went on to raise Lion Industries’ gas cost by 50 per cent to US$4.50 per million metric British thermal units as its previous tariff was about half the current tariff charged in Peninsular.

OSK Research expected sturdy contribution from Parkson, especially in the second and third quarters due to the many festivities in the period.

“Meanwhile, building material trader, Lion Forest and the joint venture for the St Mary Residences project are also likely to generate constant group earnings, albeit minimal.”

Incorporating all these factors, the research house cut its FY13 earnings estimate by 26.8 per cent, on a weaker start for the year, but maintained its FY14 numbers. It reversed its fair value slightly lower to RM1.14 per share for Lion Industries as a result of the pared down FY13 estimates.