Why Lion Industries can be considered a good buy?

1) Results is expected to be strong - Judging from recent results by Southern Steel, steel industry still in healthy position with stable demand and prices. Southern steel posted a stellar net profit with significant 64% growth driven by sales volume and better margins.

2) Lionind's valuation is much more cheaper than the rest of steel players. In fact the cheapest i.e trading at trailing PER of only 4.7x against other steel players of 5-9x. More interestingly, in terms of asset valuation, Lionind is trading at way below its Net Tangible Asset of RM2.56 per share.

3) New government under PH is looking to build 1million affordable houses. This will sustain strong demand of steel sector. In terms of supply, PH promised to review all investments with China and they will make sure that local industry will be protected. This is positive for steel industry as additional supply produced by China's steelmaker, Alliance Steel in Kuantan will be no longer a concern for the sector.

4) Strong balance sheet with strong net cash position. As at 2Q18, Lionind's net cash after minus off all the debts worth RM114m or 16.4 sen per share. That is 18% of current share price.

5) GST 0% to benefit Lionind's associate company, Parkson Bhd. Yesterday MOF announced GST has been reduced to 0%. This will boost consumer sentiment and the biggest winner will be retail market. Parkson is one of the biggest retail players in Malaysia. Look at the share price performance today.

In conclusion, i see more positives than negatives for Lionind. Risk-reward-ratio is very compelling at this share price level after months of falling due to external factors i.e. trade war (which now subsided already) and uncertainties in election outcome. For now, as these dusts settled, lets go back to fundamental. With improving Lionind's future outlook, the stock should outperform in the near term or at least to go back to its previous average share price level. I am looking at RM1.20 in the near term, RM1.50 medium term and RM2.00 long term.  

Disclaimer: This is my personal opinion and not recommendation. Please ask your remisier or dealer representatives before making any decision. Trade at your own risk.

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