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*Company Background*
Established in 1993, Hiapteck Venture Berhad (Hiaptek) is a dynamic and leading steel player in Malaysia and is rank among the top tier Malaysian steel companies with revenue exceeding RM1 billion mark. Hiaptek holds more than 20 years of extensive steel industry experience, offering steel product solution for steel application to a diverse customer base both domestic and international. Through its 35% equity owned JV with Eastern Steel, Hiaptek operates a fully integrated blast furnace steel plant with a rated annual production capacity of 700,000 MT. With that, Hiaptek became one the most important steel player in the upstream steel sector in Malaysia, producing steel billets and slabs and has created a synergy with its downstream steel businesses.
*Investment Merits*
With the recent hike in global steel rebar price as a result of the reopening of economy post pandemic, we believe that Hiaptek is set to benefit from the demand recovery due to its key role in Malaysia upstream steel sector. Moreover, with the completion of the 55MW power plant for its 35% owned Eastern Steel in October 2019, it has resulted in substantial saving in energy cost for its upstream steel manufacturing and we believe that Eastern Steel will start to be profitable and able to contribute meaningful earnings to Hiaptek. On top of that, Eastern Steel intends to continuously upgrade its plant to enhance competitiveness, and is currently constructing a new coke oven plant, targeted to complete by Q2 2021, to further reduce production cost.
*Our View*
We think the worst is likely over for Hiaptek and the near term prospect for Hiaptek is interesting for reasons that stated above. We expect Hiaptek will be able to deliver a better qoq result in Q1. Hiaptek is trading at around 6x forward FY21 PE, which we think is undemanding given its bright near term prospect. We also heard from market rumours that Hiaptek could potentially venture into glove manufacturing business through an acquisition, which will likely to cause a knee jerk reaction to share price.
