Hiap Teck's tepid earnings may continue in Q4: HLIB
This is mainly due to ongoing weak sentiment in steel prices, uncertainties surrounding US tariffs and the sluggish rollout of domestic infrastructure projects.
However, Hong Leong Investment Bank Bhd (HLIB) said the impact will be partially cushioned by stable contributions from the scaffolding business and Eastern Steel Sdn Bhd, as management continues to ramp up capacity utilisation at its hot-rolled coil (HRC) plant.
"We trim our core net profit forecasts for the financial years 2025 to 2027 (FY25-FY27) by 3.3 per cent, 0.9 per cent and 3.8 per cent respectively, mainly to reflect lower sales volume assumptions," the firm said in a note.
Hiap Teck's core net profit declined 42.9 per cent to RM47.0 million for the nine months ended FY25 (9MFY25), as the improved contribution from its 27.3 per cent-owned ESSB was more than offset by margin compression in the trading and downstream segments, due to weaker selling prices and lower sales volumes.
As for ESSB, its core earnings contribution rose 13.6 per cent to RM71.1 million in 9MFY25, supported by stronger sales volumes that more than offset the impact of lower selling prices.
The improvement was driven by the continued ramp-up in capacity utilisation since early 2024.
ESSB's HRC plant, which began operations in Dec 2024, is currently operating at around 50 per cent.
The company aims to increase the utilisation to nearly 100 per cent by the end of 2025, which would help reduce its unit conversion cost further.
Overall, HLIB maintained a "Buy" call on Hiap Teck with a lower target price of RM0.34.
Despite near-term earnings headwinds, the firm said it continues to favour Hiap Teck for its healthy balance sheet and attractive valuations.
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