Soft 3Q09 in a challenging industry. SSH Corporation (SSH) reported a 14% YoY fall in 3Q09 revenue to S$53.5m as the group continued to feel the impact from the economic downturn. Net profit fell 69% YoY to S$2.1m, lower than expected, with gross profit margins affected by a provision for inventories write-down of S$2.7m and higher other operating expenses arising from provision for impairment loss on leasehold property and foreign exchange losses. Gross profit margin for 3Q09 was 22%, lower as compared to 26% in 3Q08. Peers in the same industry have similarly been affected by the challenging business conditions with companies such as Hupsteel expecting to report a loss in its upcoming results and Asia Enterprises posting a 66% YoY fall in net profit for the past quarter.

Industry outlook remains bleak. From what we gather, steel distributors and end-users are likely to continue de-stocking amid scarce signs of a sustained recovery. Steel prices may also experience more downside risk if iron ore prices continue its downtrend in the face of weak demand. Steel demand in most sectors, (with the exception of the infrastructure industry aided by government expenditure), has to stabilize first, probably in the later part of this year, depending on a myriad of factors such as the efficacy of government stimulus packages worldwide, consumer sentiments, corporate investments and bank lending activities. SSH also said that the global economic slowdown has resulted in several projects being deferred amid softer prices for steel. The group's revenue has been affected mainly by lower steel prices and lower demand for its products.

Maintain HOLD. This latest set of results is a reflection of general business conditions across the industry, as seen by results of SSH's peers. If we were to exclude the provision for inventory write-down and property impairment, net profit would have been S$5.4m instead of S$2.1m. The group expects the rest of FY09 to remain challenging, which is the consensus view among most industry players. We are revising our earnings estimates downwards with the lower than expected results and now peg our fair value to 0.6x FY10F NTA (in line with peers) with lower earnings visibility and also fewer available consensus EPS estimates for the group's peers. As such our fair value is raised to S$0.16 (prev S$0.11). Maintain HOLD.