Period  4Q14/FY14

Actual vs. Expectations  FY14 core net profit (CNP) of RM32.1m came in above our and consensus expectation at 116.1% and 140.1% of full-year estimates, respectively. We derived the CNP after excluding one-off items namely: (i) unrealised foreign exchange loss of RM8.2m, (ii) provision for impairment of stock of RM0.2m, and (iii) reversal of doubtful debts of RM0.1m.

 The positive variance was due to: (i) higher-thanexpected sales volume, and (ii) higher sales margin. We believe the reduction in raw material prices is mainly attributed to the below-than-expected decline in scrap prices.

Dividends  Slightly below expectations. No dividend declared this quarter. Cumulatively, it declared 1.0 sen DPS, slightly lower than our forecast of 1.3 sen.

Key Result Highlights  4Q14 CNP rose by 172.1% QoQ and 4.5% YoY, respectively, driven by higher sales volume and higher margin and absence of plant maintenance. We believe that the higher margin was contributed by lower raw material costs i.e. decline in scrap prices (-6.1% QoQ, - 23.3% YoY).

Outlook  Challenging in the near-medium-term due to the absence of anti-dumping trade actions by the government. We reaffirm our view that the absence of remedies from the government to curb the rising import activities of steel products could lead to: (i) declining local steel players’ market share, and (ii) depressed steel prices.

 We also believe that the booming construction activities in the local market may not help the local steel industry to fully recover if the oversupply situation in major global producers (e.g. China and South Korea) persists.

Change to Forecasts  Despite the above-than-expected results, we opt to be conservative for now by maintaining our FY15E NP (RM35.0m). We also introduce our FY16E earnings of RM42.2m, implying 20.9% growth. Our forecasts are based on the assumption of steel rebar price of RM1,900/MT-RM2,052/MT in FY15-16E.

Rating Maintain MARKET PERFORM

Valuation  While we remain concerned on the steel industry fundamentals due to the absence of anti-dumping trade actions by the government, we still like the fact that MASTEEL is upgrading its plant to achieve better efficiency and hence higher margins.

 All in, we reiterate our TP at RM0.92 based on unchanged ascribed FY15E PBV of 0.33x. The PBV of 0.33x reflects MASTEEL’s -1.0SD valuation.

Risks to Our Call  Lower-than-expected steel prices.

 Higher-than-expected raw material and electricity costs. 

Source: Kenanga