• Company profile. MASTEEL (listed in Feb 2005) is one of the biggest long steel manufacturers in Malaysia, which is involved in the manufacturing of steel billets and steel bars. The manufacturing facilities of MASTEEL are located in Petaling Jaya and Bukit Raja, Klang, housing an annual capacity of 700,000 MT billets and 600,000 MT steel bars, respectively.

• It has over 60 domestic dealers and several international trading houses as partners in Australia, New Zealand, Indonesia, Singapore, Thailand, Vietnam and the Philippines. In FY16, exports accounted about 8% to revenue.

• MASTEEL also has an associate company which manufactures radioisotopes for the imaging of cancer cells has seen rapid growth in revenue for the last 3 years (from ~RM1.4m in FY14 to ~RM3.3m in FY16). Its radioisotopes manufacturing facility is located in Bandar Enstek, Negeri Sembilan, supplying mainly to the hospitals throughout Peninsular Malaysia.

• Anticipate a stronger 2H17. For the remainder of 2HFY17 and FY18, market is anticipating a gradual pick-up in infrastructure projects, which reinforces prices of local steel rebars to trade at multi-year high of ~RM2700/tonne levels. Overall, steel prices are likely to remain strong, buoyed by strengthening RM/US$ (which will cushion margin compression amid rising raw material prices), Malaysia’s government safeguard duties coupled with the higher China rebar prices (FIG3) following a confluence of factors including stable demand, capacity cuts and policies to reduce pollution.
   
• Playing catch-up. At RM1.22, MASTEEL is trading at 0.54x P/BV and 6.1x FY17 P/E, which are 62% and 33% below its peers (refer FIG2), respectively. In the near term, MASTEEL’s share prices are likely to play catch-up with its peers as current steep discounts are unwarranted.
   
• Positive downtrend resistance breakout. The stock has been trading above the daily support trendline and major SMAs from a low of RM0.955 (11 July). Despite rallying 27% to end at RM1.22 yesterday, share price continued to lag its peers YTD (refer FIG2). In anticipation of a better results in the coming quarters and bullish downtrend line breakout, the stock is likely to break 52-week high of RM1.28 (24 May) soon, supported by positive daily and weekly technical indicators.

• A successful breakout will spur prices higher towards RM1.35 (123.6% FP) before reaching our LT target at RM1.40 (138.2% FP). Key supports are situated near RM1.19 (5&6 Sep low) and RM1.15 (38.2% FR). Cut loss at RM1.14.

Source: Hong Leong Investment Bank Research - 7 Sept 2017