Hiap Teck: When Half the Profit Lies Off the Balance Sheet

Hiap Teck derives the bulk of its revenue from two main segments: trading and manufacturing.

• The trading segment focuses on the import, export, general distribution, and leasing of steel products, hardware, and building materials.

• The manufacturing segment covers the production, sale, and rental of pipes, hollow sections, scaffolding equipment, and other steel-related products.

Although Hiap Teck holds a 27.3% stake in a steel plant in Terengganu that produces slabs and billets, this investment is accounted for using the equity method - its share of profit or loss appears as a single line item in the income statement.

Ironically, from FY2019 to FY2024, nearly half of Hiap Teck’s cumulative profit after tax came from this associate. As such, evaluating Hiap Teck’s business outlook and intrinsic value likely calls for a sum-of-the-parts valuation approach rather than relying solely on consolidated figures.

Along this line, looking at operating profit and returns based only on NOPAT from the consolidated segments provides only half the picture. To gain a true sense of value and performance, the contribution from the associate should be considered separately.