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Monday, July 31, 2017

AmInvest Research starts coverage of CSC Steel with FV of RM2.14

Monday, 31 July 2017 | MYT 9:24 AM

KUALA LUMPUR: AmInvestment Research has initiated covered of CSC Steel Holdings Bhd with a Buy call and fair value of RM2.14 based on 10 times FY18F earnings per share (EPS), in line with the average forward price-to-earnings (PE) of major global key steel producers.

It said on Monday it projects CSC's FY17/18 earnings to grow 5%/10%.

The major factors are that: 1) it is one of the dominant local cold rolled coil players in the market; 2) average selling price (ASP) is expected to improve with the ongoing reforms in China as well the imposition of safeguard duties from 2016 till 2021; 3) cost optimisation in production enables it to maintain better margin than its peers.

AmInvest Research said global steel demand is expected to grow marginally by 0.5% (FY17F) and 1.0% (FY18F) from 1.5 billion tonnes currently, underpinned by economic growth in some regions, particularly in the emerging economies driven by the construction sector.

Meanwhile, global production supply is expected to remain flat at 1.6bil MT FY17F/FY18F, with an estimated 2.3bil MT annual capacity and average capacity utilisation of 70%.

The ongoing cuts in China steel production as well the imposition of safeguard duties by the Malaysian government for imports from China has shown positive sign to local steel players.

There are various steel products. amongst others, hot rolled coil (HRC) – flat steel, long billets – reinforcement bars and cold rolled coil – widely used in the manufacturing sector such as automotive, electrical appliances, furniture and others. Currently, the dominant manufacturer of CRC steel is CSC Steel.

“The positive outlook for steel as well as strong local demand is a major boost to CSC earnings outlook,” it said.

The key drivers for the earnings growth are that it is a subsidiary of the largest steel company in Taiwan, hence it is set to benefit from the uninterrupted sourcing of raw material, that is supply of HRC directly from parent company, translating into lower cost of doing business.

Additionally, CSC continues to produce high-grade steel through technological enhancement from the research and development (R&D) of the parent company.

CSC will actively continue to improve its existing products through R&D of its parent company to high-grade steel products to cater the demand of the domestic market.

Also, CSC plans to increase its type of products and to expand its business aggressively to cater for the export market.

“The company is constantly upgrading its existing equipment in order to maintain business efficiency at optimum level.

“As part of the company dividend policy, CSCM will pay dividend at least 50% which translates to yields of around 6%-8% annually,” it said.


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