Background

CSC Steel Holdings is a flat steel producer in Malaysia. It was listed on Main Board of Bursa Malaysia in December 2004. The group’s core products are various types of steel coils.

Strong Recovering Financials

Steel coil price has seen a downtrend since end of 2014 and dropped to its lowest in over a decade in 2015. Despite this, CSC has made a comeback in 2015 due to lower production cost where its operating profit margin has strengthen substantially. CSC is trading in the same range as its NCAV and at 33% discount to its NTA, which suggests it’s undervalue in terms of assets. CSC has also been declaring dividend every year since 2008 with a current dividend yield of 5.56%, which is an added bonus.

Recent Developments

Land Acquisition – Late 2015, CSC steel acquired two pieces of leasehold land together with a factory building at Seberang Perai Tengah for RM41m. It is expected to generate more than RM3.18m per year through rental income from existing tenancies. This is a great investment which will see recurring income.

Disposal of loss making unit – In August 2015, CSC disposed its wholly-owned subsidiary CSC Bio-Coal Sdn Bhd for RM1m after having made losses for 3 consecutive years since 2012. This suggests that the management are heading in the right direction to strengthen the company.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart software – CSC Steel

Up-trending Stock with sign of weakness expected ahead – Looking at the iVSAChart of CSC Steel, it has been on an uptrend since the breakout in Jan 2016. However, the recent sign of weakness (red down arrow) indicating potential profit taking or sideway market at best. Wait for more sign of strengths around RM1.30 - RM1.40 level before buying/accumulating.

Our View - We favour CSC Steel as it has strong recovering financials with the highest operating profit margin of 6.30% in the past 5 years and is trading at a 33% discount to its NTA. Additionally, as CSC Steel has acquired more land, we believe going forward CSC Steel can continue to record high operating margins for years to come. However, current timing is not good as we are seeing many sign of weaknesses on iVSAChart. We need to see more sign of strengths (green up arrow) on iVSAChart first before accumulating.

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This article only serves as reference information and does not constitute a buy or sell call. Make your own assessment before deciding to buy or sell any stock.