HLG: 26 May 2008 Sino Hua An International

HLG: 26 May 2008 Sino Hua An International - Q108 core net profit up +34%


Sino Hua An International BUY


Price target RM1.00



Share price at 23 May RM0.73



Investment summary


Reported Q108 core net profit of RM36m (+34%) was 22% of our full year forecast, despite new capacity coming in only after Jun08. We think our previous price assumptions are too conservative and raise our coke and coal price assumption by 23% and 22% respectively. We raise our FY08-10E EPS by 8-9% following the revision. The strong results re-affirm our BUY rating on the stock. We are bullish on Sino Hua An (SHA): (1) 5x FY08PE is a >70% discount to Chinese peers’ 14x-32x, and more than compensates for any perceived corporate governance risks, in our view. (2) 50% coking capacity expansion by H208 will boost recurring earnings by 50% pa (3) Strongly positive macro fundamentals for steel and coke manufacturing in China, given >10% pa demand growth and sector consolidation/ supply constraints.



Core profits +34% yoy

Share price has appreciated +21% since our initiation on 06Mar08. We think the key catalyst for re-rating is intact: (1) coke prices in China is up +50-60% YTD (2) commissioning of 50% new capacity by H208 will boost recurring income by 50% (3) >20% FCF yield in FY09E