Results

• 1Q15 net profit of RM5.4m came in below our expectation, accounting for 20.7% of our full-year forecast.

Deviations

• Lower-than-expected finance income.

Dividends

• None

Highlights

• QoQ. 1QFY15 net profit continued to improve, by 38.5% to RM5.4m, thanks to significantly higher sales volume and selling prices, coupled with the absence of losses from its associate. YoY. 1QFY15 performance turnaround, with a net profit of RM5.4m (from a net loss of RM0.4m in the previous year), due to higher sales volume and selling prices, which have in turn resulted in EBITDA margin expanding to 5.1% from 2.9% a year ago.

• Net cash dwindled from RM210.4m (or 55.4 sen/share in the previous quarter) to RM199.7m (or 52.6 sen).

• 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.

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

• FY15-16 net profit forecasts trimmed by 12.1-13.5%, largely to account for lower finance income assumptions.

Rating

HOLD

Positives

• Strong balance sheet.

Negatives

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

Valuation

Post earnings adjustment; we lowered our SOP-derived TP on the stock by 9.5% to RM0.95/share (see Figure 2). Maintain HOLD recommendation on the stock.

Source: Hong Leong Investment Bank Research - 11 May 2015