Stock Name: MASTEEL
Company Name: MALAYSIA STEEL WORKS (KL)BHD
Research House: OSK
Malaysia Steel Works (KL) Bhd
(Jan 26, RM1.28)
Downgrade to neutral at RM1.30 with revised higher target price RM1.33 (from RM1.22): On Jan 19, Malaysia Steel Works (Masteel) and KUB Malaysia Bhd announced to Bursa Malaysia that they will be entering into a heads of joint venture agreement to form a JV company that has proposed to supply to and operate a rail transit network within Iskandar Malaysia and Woodlands in Singapore spanning some 106.5km.
The project cost is estimated at RM1.35 billion. We attended the briefing on Jan 21, during which Masteel managing director Datuk Seri Tai Hean Leng updated analysts and fund managers on the latest developments.
Undoubtedly, implementing the proposed rail transit network will ease traffic congestion, improve the existing public transport infrastructure and act as a backbone for efficient commuting in Johor Baru, especially within the Iskandar development region. Nonetheless, we do not see any immediate earnings contribution as we expect discussions with the relevant authorities to take time.
Negotiations on the concession-type project, particularly since this is the first of its kind in the country, will obviously require many rounds of deliberations before being firmed up. Tai hopes discussions can be completed by end-2011, and the rail transit system to be ready for operation no later than 2013.
As infrastructure and public transport are new areas of endeavour for Masteel, it would be fair for us to assume greater investment risk. We prefer to monitor the developments before incorporating this project into our earnings model.
However, we are happy that the earnings from the company's bread and butter steelmaking business have beaten its bigger peers. As its 3QFY10 core numbers were exceptionally strong, we see reasonably good 4Q earnings, albeit a bit lower quarter-on-quarter.
As we think investors will appreciate the commendable earnings from its core business, we bump up our target PER by a notch to six times from five times but retain our price-to-net tangible assets ratio of 0.59 times based on FY11 numbers. This raises our fair value to RM1.33.
However, as the share price has run ahead of the proposed rail project and now offers limited upside to our new fair value, we downgrade Masteel from 'trading buy' to 'neutral'. ' OSK Investment Research, Jan 25
This article appeared in The Edge Financial Daily, January 27, 2011.
Company Name: MALAYSIA STEEL WORKS (KL)BHD
Research House: OSK
Malaysia Steel Works (KL) Bhd
(Jan 26, RM1.28)
Downgrade to neutral at RM1.30 with revised higher target price RM1.33 (from RM1.22): On Jan 19, Malaysia Steel Works (Masteel) and KUB Malaysia Bhd announced to Bursa Malaysia that they will be entering into a heads of joint venture agreement to form a JV company that has proposed to supply to and operate a rail transit network within Iskandar Malaysia and Woodlands in Singapore spanning some 106.5km.
The project cost is estimated at RM1.35 billion. We attended the briefing on Jan 21, during which Masteel managing director Datuk Seri Tai Hean Leng updated analysts and fund managers on the latest developments.
Undoubtedly, implementing the proposed rail transit network will ease traffic congestion, improve the existing public transport infrastructure and act as a backbone for efficient commuting in Johor Baru, especially within the Iskandar development region. Nonetheless, we do not see any immediate earnings contribution as we expect discussions with the relevant authorities to take time.
Negotiations on the concession-type project, particularly since this is the first of its kind in the country, will obviously require many rounds of deliberations before being firmed up. Tai hopes discussions can be completed by end-2011, and the rail transit system to be ready for operation no later than 2013.
As infrastructure and public transport are new areas of endeavour for Masteel, it would be fair for us to assume greater investment risk. We prefer to monitor the developments before incorporating this project into our earnings model.
However, we are happy that the earnings from the company's bread and butter steelmaking business have beaten its bigger peers. As its 3QFY10 core numbers were exceptionally strong, we see reasonably good 4Q earnings, albeit a bit lower quarter-on-quarter.
As we think investors will appreciate the commendable earnings from its core business, we bump up our target PER by a notch to six times from five times but retain our price-to-net tangible assets ratio of 0.59 times based on FY11 numbers. This raises our fair value to RM1.33.
However, as the share price has run ahead of the proposed rail project and now offers limited upside to our new fair value, we downgrade Masteel from 'trading buy' to 'neutral'. ' OSK Investment Research, Jan 25
This article appeared in The Edge Financial Daily, January 27, 2011.
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