CSC  Steel’s  3QFY13  net  earnings  of  MYR2.9m  were  below  our  and street  estimates,  attributed  to  lower  sales  volume,  depressed  selling prices  and higher distribution expenses.  As the oversupply of steel in China continued  to dampen the selling prices  of steel products,  we do not  foresee  any  significant  improvements  moving  forward.  We downgrade CSC to NEUTRAL, with a new FV of MYR1.30.

• Below expectations.  CSC’ 3QFY13 net earnings  of  MYR2.9m (-61.0% q-o-q,  -52.8%  y-o-y)  was  below  our  and  consensus  estimates,  with  its 9MFY13 earnings making  up only  65% of our FY13 earnings forecast. The weak 3Q performance was primarily attributed to the significant drop in  sales  volume  of  the  company’s  products  as  well  as  a  big  drop  in selling prices. CSC also incurred higher distribution expenses in 3QFY13 as a result of higher export volume arising from the weakening MYR. Market  still  dogged  by  oversupply  issues.  The  oversupply  of  crude steel in China is  still an ongoing issue while the imbalance  in  supply and demand  would  be  difficult  to  address  if  China’s  crude  steel  output remains high. It is reported that supply reached 65.4m tonnes, up 11% yo-y, in the month of September.
• Revising  lower  earnings  forecasts.  We believe  that  the situation  will remain  challenging  in  4Q  and  FY14  if  the  oversupply  is  not  resolved.That  said,  we  are  lowering  our  earnings  forecasts  by  27.5%/26.7%  for FY13F/FY14F respectively. The risks. A protracted imbalance in the supply and demand of steel will pressure selling prices  while weaker economic  growth will  dampen the demand for steel.
• Downgrade  to  NEUTRAL,  FV  at  MYR1.30.  As  the  outlook  for  CSC remains  challenging,  we  are  revising  lower  our  P/BV  multiple  on  the stock to 0.61x (from 0.83x),  which is -1.5 SD from the mean of its 5-year historical  trading  band.  W e  also  roll  over  our  valuation  parameters  to FY14F P/BV. Downgrade to NEUTRAL  from TRADING BUY,  with a new FV of MYR1.30 (from MYR1.72).

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Company Profile
CSC Steel is principally involved in the manufacturing of cold roll coils, galvanised iron and pre-painted galvanised iron

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Source; RHB