• Business profile. Mycron operates in the mid-stream sector of the steel industry, with the manufacture of Cold Rolled Coil (“CRC”) steel sheets (contributed about 62% to 1HFY6/17 revenue) and Steel Tubes (about 38% to 1HFY6/17 revenue). In March 2015, the Group acquired Melewar Steel Tube Sdn Bhd (“MST”), a manufacturer of Steel Tubes and Pipes, from its parent company, Melewar Industrial Group Berhad, through a share swap exercise.

• It is a beneficiary of recent sliding iron ore prices (core raw material to produce HRC) and a recovery in RM (vs US$) as the group imports HRC, which is the core raw material to produce CRC sheets and Steel Tubes.

• 1HFY6/17 results review. In 1HFY6/17, Mycron’s topline grew 26% to RM348m amid rising demand on CRC and steel tubes. However, core PATAMI surged 139% to RM19.6m, mainly due to: 1) A combination of favourable product mix and higher ASP as the MITI filed an anti-dumping gazette for CRC imports from selected companies from China, South Korea and Vietnam, with additional duties imposed for a five-year period, ending in 2021; 2) Better operational cost controls; and 3) Lower effective tax rates.

• Cautiously positive for 2HFY6/17. Given the sustained momentum of Mycron’s steel businesses in the 1HFY17, Managment reiterates that the Group’s prospect for the 2HFY17 remains positive, driven by the recent plunge in iron ore prices, firm steel prices coupled with a mild recovery in RM (vs US$).

• Building base above 200-d SMA before staging a LT triangle breakout. At RM0.865, Mycron is trading at undemanding valuations of trailing 6.9x P/E (vs its closest peer, CSCSTEEL 10.6x). Following its recent downtrend resistance breakout (daily chart), Mycron’s share prices have been trending above the 200-d SMA (near RM0.845). After a brief sideways trading, we expect the stock to challenge the immediate resistant level at RM0.89 (100-d SMA). A decisive breakout beyond RM0.89 will spur prices higher toward the LT downtrend line near RM0.93 (30-w SMA) and subsequently towards our LT objective at RM1.01 (76.4% FR). Key supports are RM0.82-0.845. Cut loss at RM0.81.

Source: Hong Leong Investment Bank Research - 9 May 2017