Results

• Excluding RM12.9m provision for doubtful debts (which we consider non-core), FY14’s core net loss of RM8.3m came in ahead of our projected core net loss of RM15.2m.

Deviations

• Marginally lower raw material costs.

Dividends

• Recommended total NDPS of 3 sen.

Highlights

• Ytd. FY14’s performance turned into a core net loss of RM8.3m from a core net profit of RM29.1m, due mainly to: (1) Significantly lower sales volume and selling prices; (2) Lower interest income; and (3) Higher associate losses.

• QoQ. 4QFY14’s performance turned around, with a core net profit of RM3.9m (from a net loss of RM3.1m in the previous quarter) on the back of marginally lower raw material costs and higher sales volume.

• Despite CSC recorded an improvement from a net loss to a net profit, we remained cautious as the outlook for steel in FY15 remains bleak. Looking ahead, management remains cautious on its near term outlook, given: (1) Stiff competition arising from the influx of imported steel products from China, which will likely worsen; and (2) Weaker RM, which will further weaken CSC’s profitability.

• Strong cash pile with decent dividend yield. CSC Steel has always been known for its solid balance sheet and generosity in paying out dividends. As at 31 December 2014, CSC Steel possesses a cash pile of MYR210.4m, and declared a total dividend of 3 sen (which translate to a dividend yield of 3%, despite CSC Steel recorded a net loss of RM8.3m). This may help the company to withstand such the challenging operating environment.

Risks

• Downside risks-
• (1) Overcapacity in China remains over the longer term; (2) Volatile input prices; and (3) Influx of steel products at cheap prices.

Forecasts

• Maintained.

Rating

HOLD

Positives

• Strong balance sheet.

Negatives

• Inability to pass on higher cost of raw materialsto end-users.

Valuation

SOP-derived TP lowered marginally to RM1.05 (see figure 3) to reflect the lower cash per share. Maintain HOLD recommendation.

Source: Hong Leong Investment Bank Research - 10 Feb 2015