Results Review

• CSC’s 9MFY19 net profit of RM27.7mn came within ours but above consensus’ forecast, accounting for 72.7% and 91.8% of full-year estimates respectively.

• YoY, 9MFY19 net profit surged 15.7% to RM27.7mn despite revenue was marginally higher by 0.2% at RM1,028.6mn. The stronger performance was mainly attributed to lower export marketing and administrative expenses as a result of reduced export sales. Meanwhile, the higher revenue was a result of higher sales volume in cold rolled coil products.

• QoQ, 3QFY19 net profit dropped 16.5% to RM10.5mn due to margin squeeze in all the key products arising from intensed price competition. Meanwhile, the revenue increased by 2.9% to RM353.7mn mainly driven by higher sales volume of galvanized steel and pre-painted galvanized steel products.

Impact

• Maintain our FY19 to FY21 earnings forecasts.

Outlook

• We expect the selling prices of flat steel products such as cold rolled coil and coated products to continue facing downward pressure as a result of: i) persisting weak domestic demand, ii) intensed price competition, and iii) indirect impact from global trade war.

Valuation

• We maintain our target price of RM1.11, based on unchanged 0.5x CY20 P/B. We reiterate Buy call on the stock due to its decent dividend yield and cost leadership, which should help them to sail through the headwinds

Source: TA Research - 22 Nov 2019