Stock Name: MASTEEL
Company Name: MALAYSIA STEEL WORKS (KL)BHD
Research House: OSK
Malaysia Steel Works (KL) Bhd
(May 30, RM1.23)
Maintain neutral at RM1.29 with target price of RM1.34: After beating its bigger peers in the preceding quarter, Masteel started 2011 with feeble earnings, posting a net profit of RM6.2 milllion, 53.4% lower quarter-on-quarter despite being almost flat year-on-year.
We suspect the low inventory level of less than two months as at end-December 2010 may have limited the benefits of the time lag of cheaper feed materials compared with its competitors, which keep more stocks as most of the raw material in 1Q was marked to the current market price, which has been surging since early 2011.
Therefore, earnings before interest, tax, depreciation and amortisation (Ebitda) margin slipped to only 5.3% despite escalating average selling prices (ASPs). Also, the Lunar New Year celebration in February resulted in 1Q revenue dropping by 4.6%.
Our observation suggests that activities in the local steel market remain lacklustre. Although steel demand usually picks up during the April to June period, we think this is a sign that the implementation of various mega projects introduced under the Economic Transformation Programme (ETP) remains slow.
Nonetheless, as Masteel's earnings record in the past may have showed a less consistent trend compared with its peers', we prefer to monitor the company's earnings for another quarter or two before altering our original projections. This is despite the 1Q numbers coming behind our and street estimates when annualised.
We also have some reservations on the company's recent announcement of a 60:40 joint-venture agreement to supply to and operate a 106.5km rail transit network in Iskandar Malaysia and Woodlands in Singapore.
While the Johor government and the co-chairman of Iskandar Regional Development Authority endorsed the proposal in April 2011, the company is still in the process of acquring approvals from various government agencies, which we think may take a while.
Hence we have not incorporated any earnings contribution for this project.
With the company's medium-term earnings visibility remaining poor, plus the unexciting 1Q figures, we maintain our 'neutral' rating on Masteel with a fair value of RM1.34. ' OSK Research, May 30
This article appeared in The Edge Financial Daily, May 31, 2011.
Company Name: MALAYSIA STEEL WORKS (KL)BHD
Research House: OSK
Malaysia Steel Works (KL) Bhd
(May 30, RM1.23)
Maintain neutral at RM1.29 with target price of RM1.34: After beating its bigger peers in the preceding quarter, Masteel started 2011 with feeble earnings, posting a net profit of RM6.2 milllion, 53.4% lower quarter-on-quarter despite being almost flat year-on-year.
We suspect the low inventory level of less than two months as at end-December 2010 may have limited the benefits of the time lag of cheaper feed materials compared with its competitors, which keep more stocks as most of the raw material in 1Q was marked to the current market price, which has been surging since early 2011.
Therefore, earnings before interest, tax, depreciation and amortisation (Ebitda) margin slipped to only 5.3% despite escalating average selling prices (ASPs). Also, the Lunar New Year celebration in February resulted in 1Q revenue dropping by 4.6%.
Our observation suggests that activities in the local steel market remain lacklustre. Although steel demand usually picks up during the April to June period, we think this is a sign that the implementation of various mega projects introduced under the Economic Transformation Programme (ETP) remains slow.
Nonetheless, as Masteel's earnings record in the past may have showed a less consistent trend compared with its peers', we prefer to monitor the company's earnings for another quarter or two before altering our original projections. This is despite the 1Q numbers coming behind our and street estimates when annualised.
We also have some reservations on the company's recent announcement of a 60:40 joint-venture agreement to supply to and operate a 106.5km rail transit network in Iskandar Malaysia and Woodlands in Singapore.
While the Johor government and the co-chairman of Iskandar Regional Development Authority endorsed the proposal in April 2011, the company is still in the process of acquring approvals from various government agencies, which we think may take a while.
Hence we have not incorporated any earnings contribution for this project.
With the company's medium-term earnings visibility remaining poor, plus the unexciting 1Q figures, we maintain our 'neutral' rating on Masteel with a fair value of RM1.34. ' OSK Research, May 30
This article appeared in The Edge Financial Daily, May 31, 2011.
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