PETALING JAYA: AmInvestment Research has upgraded CSC Steel Holdings Bhd from “hold” to “buy” with a fair value of RM1.83.
This is based on 10 times financial year 2018 (FY18) forecast earnings per share, in line with the average forward price-to-earnings of major global key steel producers.
The research house said in a report that value had emerged after the steep fall in share price in recent months.
It noted that CSC Steel’s FY17 core net profit of RM62.3mil (excluding RM2.5mil inventory writedown) met its forecast and consensus estimates.
The company’s FY17 turnover increased 28% year-on-year mainly driven by higher selling prices, partially offset by marginally lower sales volume.
However, its FY17 core net profit dropped 10% year-on-year as higher sales were more than offset by a sharp increase in production costs (hot-rolled coil or HRC and overhead costs) and distribution cost.
There was also an increase in exports that command thinner margins.
AmInvestment forecasts CSC Steel’s earnings in FY18 to increase by 8.3% as margins normalise.
“Recall that CSC experienced margin squeeze in FY17 on the back of rising prices of input HRC.
“Prices of end-product cold-rolled coils (CRC) normally lag those of input HRC when HRC prices are on an uptrend.
“We expect more stable HRC prices in FY18 versus FY17,” it said.