CSC  Steel’s  FY13  earnings  came  in  within  our  and  consensus’ forecasts. 4QFY13 revenue grew 5%  y-o-y but earnings sank  80%  y-o-y,mainly  due  to  lower  average  prices  despite  higher  sales  volume.  The company declared a 7 sen dividend for FY13 and its cash pile remained strong. Maintain NEUTRAL, with a MYR1.30 FV.

• FY13 earnings in line.  CSC Steel’s FY13 net profit  climbed 6.3% y-o-y to MYR29.8m,  broadly in line with our and street’s estimates, as we had factored in  a challenging 4QFY13 earlier.  While  4QFY13  revenue grew 5.0% y-o-y due to higher sales volume, the sharply lower average selling prices  dampened 4QFY13  earnings, which  contributed only MYR1.0m (-81.3%  y-o-y)  to  full-year  earnings.  Management  revealed  that  its  pilot bio-coal  manufacturing  plant  has  yet  to  commence  commercial production  as  its  parent  company’s  R&D  team  involved  in  the development of this plant  still faces  major  technical issues. Hence, the company has yet to incorporate any contribution from this venture.
• Strong  cash  pile  with  high  dividend  yield.  CSC  Steel  has  always been  known  for  its  solid  balance  sheet  and  generosity  in  paying  out dividends. As at 31 December 2013, CSC Steel possesses a cash pile of MYR259m,  and  declared  a  total  dividend  of  7  sen,  or  90%  dividend payout ratio, that translate to a dividend yield of 5.4% based on  the  last closing price.
• Maintain NEUTRAL. As we have yet to see a significant recovery in the steel  industry,  in  terms  of  a  strong  demand  pickup  and  a  recovery  in selling prices due to overcapacity  in  the market, we  believe CSC Steel may continue to face headwinds  in  the near term.  As such, we  maintain our  NEUTRAL  recommendation,  with  an  unchanged  MYR1.30  FV, pegged to 0.61x FY14F BV, which is  -1.5SD to  the mean of its historical trading band.

Financial Exhibits

SWOT Analysis

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

Recommendation Chart

Source: RHB