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Malaysia Steel Works - 3Q12 below expectations

kiasutrader
Publish date: Mon, 03 Dec 2012, 11:16 AM
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Period    3Q12/9M12

Actual vs. Expectations    The 3Q12 results came in below ours and the consensus expectations.

 The 9M12 net profit of RM21.2m came in at 68% and 60% of ours and the consensus' FY12 full year forecasts respectively. 

Dividends   No dividend was declared.

Key Result Highlights    The 9M12 net earnings dropped by 44% to RM21.2m on the back of a 9% increase in revenue. This was due to an effective higher operating cost during the year and partly due to a higher inventory cost recorded in early 2012. The pre-tax margin for the period halved from last year's 4%.     

 QoQ, the 3Q12 net profit came down by 63% due to an increase in the production cost, which outpaced the average selling price. This was further due to the softening market during the Ramadan period.     
  
Outlook   We expect next year will be a busy year for steel players, especially for Masteel. The demand for its steel billets and long products is expected to increase in tandem with the busier construction activities in 2013. However, we do not expect an increase in selling price as the global oversupply issue is still persistent. 

Change to Forecasts  We have trimmed down our FY12-13E by 10% and 21% as we had reduced our average selling price lower and tuned up our FY13 production cost higher.
 
Rating  Downgrade to MARKET PERFORM We have downgraded Masteel from an OUTERFORM to a MARKET PERFORM due to its limited capital upside (3%) to our revised Target Price.  

Valuation    We have reduced our Target Price from RM1.08 to RM0.90 due to our adjusted lower FY13E earnings above.  

Risks   Volatile scrap prices and a subdued average selling price due to the global economic uncertainties. 
 A lower plant utilisation in FY13.  

Source: Kenanga 
MASTEEL (5098)
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