Steel (Underweight)

No light at end of tunnel yet

'''' We believe prospects of the steel sector will likely to remain weak in the near term as various indicators are pointing towards weakening steel consumption in China (the world's largest steel producing and consuming country). These include:

1.'''' The falling crude steel production in China, as more steel mills started to embark on plant overhauls;

2.'''' The deteriorating real estate climate in China, indicating fewer property launches in the near future, hence lowering steel demand and prices; and

3.'''' The sliding iron ore prices, which will further weigh down on steel product prices.

'''' Closer to home, while the implementation of large scale infrastructure projects, coupled with sustained property development activities (arising from the active property launches) will help boost steel consumption, we believe this is unlikely to help protecting domestic steel producers' earnings from being hit by the external factors (mainly from China).

'''' We are lowering our net profit forecasts for all three steel companies under our coverage by 8.9-33.8%, to reflect the weak near term outlook.

'''' We are also downgrading our target P/E multiple for the steel sector by 1x. Post earnings revision and P/E downgrade, TPs on steel companies under our coverage are cut by 8.9-36.4%. Recommendations for all three companies under our coverage were downgraded from Hold to Sell following the downgrade in TPs.

'''' Downgraded from Neutral to Underweight.

''

KLCI: Cautious ahead of long holiday weekend

'' Unless the index closes above the uptrend channel, KLCI will continue its range bound consolidation with 30-day (now at 1420) and 50-d SMAs (1437) acting as immediate supports. Immediate resistance zones are 38.2% FR (at 1487), 1493 (last week's high) and 1500 psychological levels.

''

DJIA: Stiff resistance near 12300-12500 pts''

'''' Sentiment has turned slightly better following Dow's resilience to defend above the neckline support near 11600 as a breakdown below this head & shoulder support will trigger more selldown towards lower Bollinger band of 11128 and 11k psychological level.

'''' However, given the increasingly overbought technical readings, the Dow could face stiff resistance near 12500 and upper Bollinger band (12567).