9MFY15 core net loss which deepened to MYR82.8m was another letdown. We maintain our NEUTRAL call with a lower MYR0.40 TP (0.12x FY16 P/BV, 0% upside), as downside from our new TP may be limited. We cut our FY15 earnings estimate as we expect another letdown inlocal steel prices, which could possibly extend its losses into 4Q.

• Extended losses. Lion Industries’ core loss widened to MYR40.8m in 3QFY15 (Jun), down 260.5% QoQ and 465.9% YoY. The results were disappointing as we had expected only a marginal loss, while the market may have had expected at least a breakeven quarter. The loss was mainly due to its steel division, as a sharp plunge in scrap prices dented profitability of its iron-making plant in Labuan, since selling prices of its products benchmark the scrap prices. Separately, intensified competition from imported steel also contributed to extended losses at its steelmaking division. Furthermore, associate contribution from its 17%-owned Parkson Holdings (Parkson) (PKS MK, SELL, TP: MYR1.70) was lower given the latter’s disappointing results.
• Outlook still challenging. We expect scrap prices, which have fallen to USD250/tonne since early this year, to partly compensate for the potential further weakness in prices of local steel bars and wire rods. However, lower scrap prices may continue to dent profitability of its ironmaking unit. In addition, intensifying competition from steel imports may adversely affect margins in the near term. Separately, we expect Parkson’s contribution to continue to slide, with weak sales growth expected from most of its stores.
• Maintain NEUTRAL. Lion Industries’ disappointing results coupled with the fast-declining steel prices prompted us to project a deeper loss in FY15, but keep our FY16/FY17 earnings estimates unchanged. Weupdate the company’s 5-year historical P/BV trading range, with its latest -1.5SD deriving a lower 0.12x (from 0.13x). This reduces our TP toMYR0.40 (from MYR0.45). Given the limited downside risk from here, we keep our NEUTRAL call on the stock.