Tuesday, April 15, 2008

HUAAN should benefit from strong demand for steel


Sino Hua-An International Bhd ('HUAAN') is involved in the production of metallurgical coke and related by-products. Coke is used as the main fuel in iron-making blast furnaces (for more on Coke [Fuel], go here).

HUAAN assumed the listing status of Antah Holdings Bhd after the completion of the restructuring scheme. HUAAN's production facilities are located in China and it is the only Chinese-owned company listed on our exchange.

With strong demand seen in the steel sector, HUAAN has proposed to increase its production facilities by 50% from 900,000 tonne to 1.5 million tonnne. The increased production facilities should be ready by middle of this year.

Financial Results

HUANN's net profit for the past 4 quarter amounted to RM127.5 million, representing an increase of 10.9% over the net profit of the preceding 4 quarters totaling RM115.0 million. During the same periods, turnover has increased by 16.7% from RM730.7 million to RM852.7 million.

For FY2008, HUAAN expects its turnover to touch RM1.0 billion when the additional production of 600,000 tonne is ready in mid-2008. On pro rata basis, its net profit might increase to RM160 million. This means HUAAN may earn 14 sen per share. Based on this, HUAAN is trading at a forward PE of 4.3 times.

Technical Outlook

From both the daily & weekly charts, we can see that HUAAN is poised to break to the upside of the short-term downtrend as well as the medium-term downtrend. By 4.30 pm, HUAAN has gained 4 sen to reach RM0.64- breaking above the short-term downtrend line resistance at RM0.62 level. The volume is still small at 1.7 million units traded.

Chart 1: HUAAN's daily chart as at April 14, 2008 (courtesy of Quickcharts)

Chart 2: HUAAN's weekly chart as at April 14, 2008 (courtesy of Quickcharts)


Based on buoyant demand from the steel sector, HUAAN's financial performance is likely to improve. Technically speaking, the stock may have broken above its downtrend line. Thus, HUAAN could be a safe & promising BUY for the medium-term.

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