• Three of industrial stocks under our coverage were below forecast, three exhibited results in line while another two surpassing our expectations during the quarter under review.

• We anticipate a challenging business environment in the near term due to persistent global headwinds without evident signs of easing, which may impact weak demand. Nevertheless, we acknowledge that commendable strategic management approaches can enable these companies to sustain growth in the face of challenging environments.

• We are maintaining a NEUTRAL stance on the industrial sector as we anticipate the presence of persistent downside risks despite the promising long-term prospects for businesses in this sector.

Deteriorating metal prices and uneven demand in manufacturing

Among the metal stocks in our coverage, only Press Metal's earnings met expectations, while OMH and Ann Joo fell below. However, PMB Tech exceeded our expectations. Meanwhile, in the industrial products sector, Wellcall and Scientex earnings were in line with expectations, while Hextar Global exceeded and KPS fell below expectations, respectively. Overall, we conclude that metal prices during 4Q23 deteriorated in tandem with subdued demand, attributed to a high inflationary environment, thus affecting overall demand. On the industrial sector, Hextar Global demonstrated a stellar contribution from its new segment, the Fruit segment, which began reflecting in this quarter.

Addressing challenges in manufacturing; challenging metal prices outlook

We view a challenging business environment in the near term, stemming from persistent global headwinds that show no signs of easing at least until 1H24. Also, we are cautious about the Red Sea Crisis, which may impact on the exports of certain export-driven companies. On the metals outlook, we anticipate ongoing challenges in metal price movements, particularly for ferroalloys and steel, primarily driven by weakened demand. Nonetheless, the ongoing tight supply of aluminum is set to persist, with European supply cuts and the potential Russian production ban threatening inventory levels and driving up aluminum price. As for industrial products, we foresee industrial players to face margin pressure due to increased input costs, compounded by weak demand. Nonetheless, we acknowledge that prudent strategic management tactics will empower these companies to sustain growth in spite of the challenging environment.

Neutral on the sector

We have a NEUTRAL recommendation on the sector due to several global headwinds that may exert downward pressure on the industry. We have BUY call for Press Metal (RM5.43), OMH (RM1.96), Scientex, (RM4.15) and Wellcall (RM1.90), HOLD call for Hextar Global (RM0.79) and KPS (RM0.72) while SELL call for PMB Technology (RM1.11) while Non-Rated for Ann Joo Resources.

Source: BIMB Securities Research - 7 Mar 2024