CSC  Steel  reported  a  1Q14  MYR0.4m  net  loss,  ie  below  our  and consensus  estimates.  This  was  on:  i)  lower  ASPs,  ii)  lower  sales volume, and iii) higher raw material costs. Its earnings visibility remainspoor  as  the  operating  environment  for  the  steel  industry  is  still challenging.  Thus,  we  are  discontinuing  coverage  on  CSC  Steel.  Our last recommendation was NEUTRAL with a MYR1.30 FV. Bottomline in the red.  CSC Steel kick-started  FY14 with a net loss of MYR0.4m (>-100% y-o-y)  on the back of lower revenue of MYR269.4m (-13.7% y-o-y). This arose from lower ASPs and sales volume of its steel products. This, coupled with the higher  raw material costs, has exerted more pressure on the company’s  profitability. The sluggish performance came in below our and street estimates.

• Operating  environment  is  getting  more  challenging.  As  guided  by management,  the  outlook  for  CSC  Steel  still  remains  challenging.  The increase  in  the price of  natural gas from 1 May by Gas Malaysia  (GMB MK,  NR)  is  expected  to  have  a  negative  impact  on  the  local  steel industry.  This  is  adding  on  to  the  escalation  in  costs  on  the  electricitytariff  hike  earlier  this  year.  Management  also  acknowledged  that  the steel  industry  is  already  facing  fierce  competition  from  imported  steel products, as well as a severe  influx of iron and steel materials. With that, we believe the earnings visibility for CSC Steel should remain gloomy.
• A  solid  balance  sheet  to  withstand  this  challenging  time.  On  apositive  note,  CSC  Steel  still  possesses  a  solid  balance  sheet  with  a cash  pile  of  MYR197.4m  and  zero  borrowings.  This  may  help  the company to withstand such the challenging operating environment.
• Discontinuing  coverage.  Due  to  a  relocation  of  resources,  we  are discontinuing coverage on  CSC Steel. Our last recommendation for  the stock  is  NEUTRAL  with  a  FV  of  MYR1.30.  This  is  pegged  to  0.61x FY14F BV, which is -1.5SD to the mean of its historical trading band.

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

Source: RHB