Investment Highlights

• We maintain our BUY call, forecasts and FV of RM2.14 for CSC Steel Holdings (CSCM), based on FY18F EPS, in line with the average forward PE of major global key steel producers.

• CSCM’s 1HFY17 net profit came in at only 43% and 45% of our and consensus full-year forecast respectively. However, we consider 1HFY17 results within expectations as we expect a stronger 2HFY17 underpinned by: 1) higher ASP with the on-going structural reforms in China to curb steel production as well the hike in cost of raw materials (i.e. coal and iron ore) which translates to higher selling price, 2) higher demand driven by the manufacturing and construction sectors, and 3) Higher sales of high-grade product variants which command higher margins.

• 1HFY17 PBT declined by 17% YoY due to a significant increase in production cost (i.e. raw material cost) and lower sales volume. Despite the lower sales volume, revenue surged by 29% thanks to higher selling prices.

• We continue to like CSCM because 1) it is one of the dominant local CRC players in the market, 2) ASP is expected to improve with the ongoing reforms in China as well the imposition of safeguard duties from 2016 till 2021; and 3) provides healthy dividend to its shareholder yielding ~6%-8% per annum.

Source: AmInvest Research - 28 Aug 2017