Results Review

• Excluding the provision for the inventories written down of RM8.5mn, CSCSTEL’s 1HFY23 core profit of RM39.2mn came in above expectations, accounting for 81.2% of our full-year estimate. The positive variance was mainly due to stronger-than-expected sales volume.

• YoY, 1HFY23 core profit increased 5.9% to RM39.2mn although revenue was 20.2% lower at RM778.2mn. The stronger bottom line was largely driven by robust sales volume, despite softer average selling price of steel products.

• QoQ, 2QFY23 core profit surged 72.3% to RM24.8mn despite revenue falling by 8.0% to RM373.0mn. The stronger bottom line was largely driven by higher sales volume.

• Its balance sheet remained solid with zero borrowings and its net cash position improved further from RM280.3mn a quarter ago to RM345.0mn or 90.8sen/share.

Impact

• Following the stronger-than-expected results, earnings forecasts for FY23/FY24/FY25 were increased by 17.7%/4.1%/6.0%, respectively, after factoring in higher sales volume.

Outlook

• Generally, we expect the sales volume to continue pick up in the upcoming quarters in tandem with the recovery from the construction and industrial sectors. However, the global steel prices are likely to remain lacklustre given that China is still suffering from the real estate crisis.

Valuation

• After revising the earnings forecasts, we revised the target price from RM1.18 to RM1.21, based on 8xCY24 earnings. Maintain Hold call on the stock.

Source: TA Research - 21 Aug 2023