Period  3Q13/9M13

Actual vs. Expectations Malaysia Steel Works (Masteel) recorded 9M13 earnings of RM23.4m which was within our and consensus estimates, making up 80% and 74% of full year forecasts, respectively. We are expecting a weaker set of 4Q13 numbers on the seasonal factor.

Dividends  No dividend was declared for the current quarter, as expected.

Key Result Highlights 9M13, Masteel recorded 11% growth in earnings from RM21.2m to RM23.4m on the back of a 3% revenue growth. The increase in revenue was largely due to better demand from the local market.

 YoY, 3Q13 earnings picked up registering a growth of 38% from RM7.0m to RM9.7m. The improvement was due to better sales (+12%) and further improvement in margins where operating margin increased by 1ppt to 4%. While better local demand drove the higher revenue, the improved operating margin was mainly due to lower cost of production from improved plant utilisation rate.

 QoQ, its 3Q13 earnings saw a marginal dip of 4% from RM10.1m to RM9.7m despite a 3% revenue growth due to a slightly higher production cost.

Outlook  We are turning cautious on the outlook for the steel industry as the global pricing pressure is still persistent. However, Masteel would still be able to outshine its peers due to its smaller capacity.

Change to Forecasts No changes to our earnings estimate.

Rating Downgrade to UNDERPERFORM We are downgrading Masteel from MARKET PERFORM to UNDERPERFORM in the absence of upside from our TP of RM0.91.

Valuation  We maintain our Target Price of RM0.91 based on an unchanged 7x FY14 PER.

Risks to Our Call Better average selling price.

 Better plant utilisation in FY13.

Source: Kenanga