Stock Name: KINSTEL
Company Name: KINSTEEL BHD
Research House: MAYBANK
KUALA LUMPUR: Maybank Investment Bank Equity Research (Maybank IB) has upgraded KINSTEEL BHD [] to BUY from HOLD at RM1.03, with a higher target price of RM1.23 -- compared to the previous target of RM1.03 -- after raising its earnings forecasts, and placing a higher eight times 2011 PER target on optimism for near-term margin growth. The research house said it had turned positive on Kinsteel as its Apr-May '10 billet deliveries have been sold forward at US$550 per tonne (versus US$600 per tonne currently), while reflecting the inflated iron ore costs. "Its current iron ore inventory, sufficient till June 2010, was procured at an average price of US$110 per tonne (versus 2Q10 quarterly contract of US$200 per tonne). "The resulting margin expansion will be more than sufficient to compensate for a potential gas price hike," it said. Maybank IB said with a three-month iron ore inventory in hand, Kinsteel would not commit to the 2Q10 iron ore contract (90% above 2009 annual benchmark of USD90 per month for iron ore pellet). Management may consider sourcing iron ore from domestic reserves in nearby Pahang, Terengganu and Kelantan, which could have more favourable pricing. The research house said that Kinsteel shares offered a better risk-reward ratio now, given higher steel prices, positive global steel fundamentals, and low foreign shareholding of less than 10%, compared to 25% in 3Q08. "We raised our 2010 EPS by 13% while that of 2011 is largely unchanged, reflecting latest steel prices and iron ore input costs. "This upgrade brings our forecast to the top-range of broker estimates. Our new target price is RM1.23 (+19%), applying 8 times PER to 2011 fully-diluted EPS (6 times previously), in line with our target for Ann Joo," it said.
Company Name: KINSTEEL BHD
Research House: MAYBANK
KUALA LUMPUR: Maybank Investment Bank Equity Research (Maybank IB) has upgraded KINSTEEL BHD [] to BUY from HOLD at RM1.03, with a higher target price of RM1.23 -- compared to the previous target of RM1.03 -- after raising its earnings forecasts, and placing a higher eight times 2011 PER target on optimism for near-term margin growth. The research house said it had turned positive on Kinsteel as its Apr-May '10 billet deliveries have been sold forward at US$550 per tonne (versus US$600 per tonne currently), while reflecting the inflated iron ore costs. "Its current iron ore inventory, sufficient till June 2010, was procured at an average price of US$110 per tonne (versus 2Q10 quarterly contract of US$200 per tonne). "The resulting margin expansion will be more than sufficient to compensate for a potential gas price hike," it said. Maybank IB said with a three-month iron ore inventory in hand, Kinsteel would not commit to the 2Q10 iron ore contract (90% above 2009 annual benchmark of USD90 per month for iron ore pellet). Management may consider sourcing iron ore from domestic reserves in nearby Pahang, Terengganu and Kelantan, which could have more favourable pricing. The research house said that Kinsteel shares offered a better risk-reward ratio now, given higher steel prices, positive global steel fundamentals, and low foreign shareholding of less than 10%, compared to 25% in 3Q08. "We raised our 2010 EPS by 13% while that of 2011 is largely unchanged, reflecting latest steel prices and iron ore input costs. "This upgrade brings our forecast to the top-range of broker estimates. Our new target price is RM1.23 (+19%), applying 8 times PER to 2011 fully-diluted EPS (6 times previously), in line with our target for Ann Joo," it said.
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