HLG: Sino Hua An - No surprise; BUY on higher H208 (25 August 2008)

Sino Hua An International BUY



Price target RM1.00



Share price at 22 Aug RM0.545



Investment summary


H108 net profit of RM73m (+44% yoy) is 44-46% of HLG and consensus full-year forecast. The net profit growth was mainly due to higher selling prices of coke and by-products. We expect higher earnings contribution in H208 following the commissioning of the new 50% capacity in Jun08. We remain bullish on SHA: (1) taking into account the new capacity, current valuation at 3x FY09 PE is >70% discount to Chinese listed peers more than compensates for any perceived corporate governance risks, in our view (2) strong positive macro fundamental for steel and coke manufacturing in China with >10% pa demand growth and sector consolidation/supply constraints.



Expect strong H208

Q208 results were within our expectation and share price now trades at 46% below its IPO last year. We see little downside from current levels and advocate investors to buy ahead of strong EPS growth in Q308 due to higher production level.