PETALING JAYA: CSC Steel Holdings Bhd has unlocked some value through the disposal of two parcels of industrial land in Perai, Penang, for RM43.5mil cash and intends to use the proceeds for working capital.
While this will strengthen the balance sheet of the company, which is primarily engaged in the manufacturing and marketing of steel coils, some analysts are neutral on the proposed disposal.
TA Securities Research, in a note to clients, said it is expected to register a loss of disposal of not more than RM2.8mil and may need to explore new avenues to fill up the loss of rental income.
Pending the completion of the disposal, which is slated within three months from the date of the sale and purchase agreement with Tashin Holdings Bhd, TA is maintaining its financial year 2021 (FY21) to FY23 earnings forecasts at this point.
Going forward, it believes demand for flat steel products is on track to recovery on the back of improving prospects for the automotive and manufacturing sectors following the relaxation of the movement control order (MCO).
“Hence, we upgrade the price-to-book value (P/BV) multiple for CSC Steel from 0.75 times to 0.85 times.
“Consequently, we raise the target price from RM1.72 to RM1.95, based on 0.85 times calendar year 2022’s P/BV.”
Meanwhile, group managing director Yin Shou-Kang said in the company’s 2020 annual report that CSC Steel will continue to strengthen its competitiveness amid the uncertainties that the Malaysian steel industry is facing following the Covid-19 outbreak and trade wars in 2020.
“The outbreak of Covid-19 has caused the profit margins of steel mills to remain under pressure and some of the steel mills had achieved unfavourable results from last year, ” he said.
On its part, he said “management continues to identify areas that could be improved such as quality and productivity, operation efficiency and cost reduction”.
It will also continue to consolidate the domestic market as well as to promote the development of high-grade and high-value steel products.
As for the outlook of the steel market in 2021, he expects it to remain challenging considering that the effects of the pandemic remained severe in the beginning of this year despite Covid-19 vaccines being produced and circulated to multiple countries.
“For the international steel market, with steel prices constantly rising for the past few months, it is expected that the price may progressively enter the horizontal consolidation period. Any further breakthrough depends on the rise and fall of the iron ore as well as the demand and supply across the globe, ” he added.
Locally, with the country facing the prospect of another wave of Covid-19 cases, he said the group will be responsive to its impact on economic activities, and cooperate closely with customers to overcome the situation.
“Production planning and product delivery will be more flexibly adjusted according to market needs and economic recovery.
“We will also ensure that the customers’ production will not be disrupted due to the shortage of raw materials, ” he said.
He added that barring any unforeseen circumstances, the group is “cautiously optimistic it could minimise the impact of recent global issues and the slowdown of economic growth from Covid-19”.
For FY20, CSC Steel achieved lower revenue of RM1.08bil, down by about one-fifth from a year ago, because it had to shut down production for more than a month due to the implementation of the MCO in March 2020.
However, it registered a higher pre-tax profit of RM46.6mil compared to RM43.4mil in FY19 due to a recovery in margin as a result of better sales in the second half of 2020 and improved operational efficiency.
The higher profits were also partially contributed by the increase of material prices in the global steel market.