• Company profile. MASTEEL (listed in Feb 2005) is one of the biggest integrated steel companies in Malaysia, which is involved in the manufacturing of high-tensile deformed steel bars, mild steel round bars and steel billets. It has over 60 domestic dealers and several international trading houses as partners in Australia, New Zealand, Indonesia, Singapore, Thailand, Vietnam and the Philippines. Its facilities in Section 51, PJ and Bukit Raja, Klang house a 700,000 MT p.a. billet plant and a rolling mill with an annual capacity of 650,000 MT steel bars p.a., respectively.
• Anticipate a better 4Q16 results. In our view, the market may have overly punished the stock, as MASTEEL is only trading at 0.39x P/BV, 61% below the sector and 10% below its 10-year average. We think such valuations have provided a sufficient margin of safety and cushion further selldown. On the flip side, if MASTEEL delivers a strong improvement in its upcoming 4Q16 earnings similar to SSTEEL (PATAMI surged 85% qoq), share prices are likely to witness further re-rating. The positive optimism is driven by (i) resilient sales volume in anticipation of positive construction outlook in Malaysia, as imports have waned on the implementation of safeguard duties in Sep 2016; and (ii) potential margin expansion as the rally in steel ASPs following China’s steel plant consolidation and positive newsflow from US amid expectation of a marked demand consumption in the US due to Trump’s US$550bn stimulus plan.
• Positive downtrend resistance breakout. MASTEEL's share price headed sideways for the past two months and continued to lag its peers YTD. In anticipation of a better 4Q16 results and its recent downtrend line breakout, share prices are likely to break immediate horizontal resistance of RM0.885 (YTD high) soon. A decisive breakout will spur prices higher towards RM0.90 (61.8% FR) and our long term target at RM0.975 (24 Oct high). Key supports are situated near RM0.83 (14 Feb low) and RM0.815 (50-d SMA). Cut-loss at RM0.805.

Source: Hong Leong Investment Bank Research - 21 Feb 2017