• Profile. AYS Ventures Berhad (listed in May 2012) has two main business divisions, namely i) Trading division - trades and markets a diverse range of steel products and construction materials (contributed over 95% to operating profit in 1HFY18); and ii) Manufacturing division - manufactures and trades pressed steel and fiberglass reinforced polyester sectional water tanks, steel purlin and wire products.

• New revenue stream. AYS is installing a fully automatic CNC structural steel facility to produce steel structure components. Also in this new facility, AYS will be able to develop industrialised building system (IBS) and create a new income avenue for the Group.

• Anticipate improving 2HFY18 and beyond. Despite registering a 21% decline in 1HFY18 earnings at RM12.6m, AYS is cautiously optimistic to improve its performance in 2HFY18 and beyond leveraging on the local positive steel demand as the primary anchor of growth, underpinned by robust private sector expenditure coupled with Government’s continued roll-out of key local infrastructure projects, which will sustain strong prices.

• To recap, local steel sector outlook is likely to remain buoyant thanks to the strengthening RM/US$ (which will cushion margin compression amid rising raw material prices), Malaysia’s government safeguard duties and infrastructure boost coupled with the higher China rebar prices (amid a confluence of factors including stable demand, capacity cuts and policies to reduce pollution). Currently, AYS is trading at ~6.8x trailing P/E and 33% below its BVPS of RM0.65.
• Poised for a downtrend line breakout. AYS has been trending downward after hitting all-time high of RM0.665 (13 June 2017). However, yesterday’s breakout above the immediate 10d SMA could potentially lead to a resumption of short to medium term uptrend, supported by the Tweezers bottom/hammer candlestick patterns as well as bottoming up indicators. A successful breakout above RM0.45 (downtrend line) will spur prices higher towards RM0.47 (30d SMA) before heading to our LT objective at RM0.525 (50% FR). Key supports are situated near RM0.405 (7-12 Dec low) and RM0.40 psychological level. A breakdown bel ow RM0.40 will trigger further retracement towards RM0.375 (27 Mar low). Cut loss at RM0.395.

Source: Hong Leong Investment Bank Research - 13 Dec 2017