Target Price: MYR1.72
1HFY13 Results In Line
CSC Steel (CSCS)’s 1HFY13 earnings of MYR25.1m (+54.3% y-o-y) were in line with our and street estimates despite a sharp decline in 2Q. The poor 2Q results were mainly due to lower sales volume, narrower profit margin and a significant write down in inventories. We think the outlook for CSCS is improving although the industry remains challenging.
Maintain Trading BUY on CSCS, with our MYR1.72 FV unchanged.
• Weaker quarter but still in line. Although CSCS reported weaker numbers in 2QFY13, with net earnings of MYR10.2m (-57.1% q-o-q, -29.5% y-o-y), the overall YTD numbers were still in line with our expectations. The poor performance this quarter was mainly attributed to lower sales volume of its steel products coupled with weaker selling prices. This quarter’s bottomline was further dampened by a significant MYR9.4m write down in inventories due to the revaluing of inventories at lower cost and at net realizable value.
• Industry outlook still challenging. We still do not see any significant improvement in the steel sector as the global economy is expected to slow down on the back of the US tapering its quantitative easing policy. Furthermore, as highlighted by Management, the steel oversupply in China’s market remains serious and continues to depress prices.
• Focus on volume. With the low selling price of steel products thinning profit margin, CSCS is targeting for high volume in order to stay profitable. The Indonesian market remains its main export market due to the relatively stronger demand for steel there compared to other Asean countries.
• Maintain Trading BUY. As the results are in line with our estimates, we make no changes to our earnings forecasts at this juncture. We also keep our FV of MYR1.72, based on 0.83x FY13F BV, which is also the mean of its five-year historical trading band. Maintain Trading BUY on the back of CSCS’ improved earnings outlook despite the overall fragility of the steel market.
Publish date: 06/08/13