With revised expectation of a weak turnaround by Sino Hua-An (Huaan) on a sharp pullback in the China steel market since August 2009 and an early winter, we now downgrade our earnings forecast to barely breaking even for FY09. However, we remain hopeful for FY10 on the boost from the country’s RMB4trn stimulus packages. As investors may have low expectations of this year’s performance and are looking forward for a more convincing improvement in FY10, we are keeping our FY10 original projection and target price of RM0.87. The fair value is derived from 7.8x FY10 EPS, or 30% premium to the steel sector valuation.
Reiterate BUY. As the market is forward looking, we advise investors to ride on a potential recovery in FY10 driven by implementation of China’s RMB 4 trn stimulus package. The fact that China’s crude steel production has surpassed its historical peak of >95% of the country’s installed capacity since June 2009 also supports our view that any downside for Huaan will be limited. With that, we are keeping our FY10 earning assumption and fair value of RM0.87 despite being most bullish among the street forecasts.
