Period     1QFY13 / 3MFY13

Actual vs.  Expectations     Masteel’s 3MFY13 earnings of RM3.6m came in below ours and the consensus expectations, making up only 10% of ours and the consensus FY13 full year forecasts respectively predominantly due  to softer than expected average selling prices.

Dividends    No dividend was declared as expected

Key Result Highlights   YoY, Masteel’s managed to turn around its earnings from a net loss of RM4.9m to a net profit of RM3.6m despite a lower revenue recorded due to lower average selling prices. Masteel managed to turn profitable due lower production costs as a result of better efficiencies and also better input costs.

QoQ, its net profit grew 30% to RM3.6m from RM2.7m on the back of its revenue growth of 5% coupled with better operating margins where its EBITDA margin increased by 1ppt to 4%. The growth in revenue was due to better local demands supported by the on-going construction activities under the ETP roadmap by the government.

Outlook    Moving forward, we expect this year to be a busy year for steel players, especially for Masteel given its smaller capacity as compared to its peers. The demand for its steel billets and long products is expected to increase in tandem with the higher construction activities. However, we do not expect a significant increase in its selling price as the global oversupply issue is still persistent. 

Change to Forecasts     We have reduced our FY13-14 earnings by 29% and 7% respectively as we tweaked our raw material costs assumption higher given that our previous assumption was too optimistic.

Rating    Maintain MARKET PERFORM

Valuation     Nonetheless, we have raised our TP marginally price due to the global economic uncertainties. 

Risks    Volatile scrap prices and a subdued average selling from RM0.90 to RM0.91 as we rolled forward our valuation base from FY13 to FY14 on 7.0x FY14 PER.  

A lower plant utilisation in FY13. 

Source: Kenanga