KUALA LUMPUR: Hiap Teck Venture Bhd's (HTVB) performance is anticipated to improve in the second quarter (Q2) of FY23, as lower raw material prices and higher steel product prices will likely mitigate lackluster demand for steel products.

Hong Leong Investment Bank Bhd (HLIB Research) said the slowdown in demand has resulted from slower construction activities during the Lunar New Year month and rainy season.

Besides that, the bank-backed research firm said steel product prices have recovered by 15 per cent since the end-Q1 FY23.

"We remain upbeat on HTVB's earnings prospects, backed by improving demand prospects for steel products, low steel inventory in China, which will likely support near-term restocking activities, and relatively low crude steel output in China," HLIB Research said in a note today.

HLIB Research said that over the longer term, HTVB's earnings growth will be driven by its 27.3 per cent owned Eastern Steel Sdn Bhd (ESSB) major expansion plan and China's policies to reform its steel sector, which will result in more stable profitability among steel players in the region.

HLIB Research raised HTVB's FY23-FY25 core net profit forecasts by 16.1 per cent, 14.6 per cent and 16.1 per cent, mainly to account for higher gross earnings margin assumptions at trading and downstream manufacturing segments and marginally higher average selling price assumptions at ESSB.

The research firm has maintained its 'Buy' call on HTVB with a higher target price of 38 sen from 33 sen.

"We continue to like HTVB for its healthy balance sheet and multi-year growth potential in ESSB's earnings, supported by its continuous efforts in enhancing cost efficiencies and major capacity expansion," it added.