Results Review

• Excluding the provision for the inventories written down of RM0.4mn, CSCSTEL’s 9MFY23 core profit of RM39.4mn came in within expectations, accounting for 70.1% of our full-year estimate.

• YoY, 9MFY23 core profit jumped 15.5% to RM39.4mn although revenue was 11.6% lower at RM1,182.4mn. The weaker revenue was largely due to lower average selling prices despite the improvement in steel demand. Nevertheless, the group still recorded a stronger bottom line thanks to higher investment income.

• QoQ, 3QFY23 core profit fell 99.1% to RM0.1mn despite revenue surging by 8.4% to RM404.2mn. The weaker bottom line was mainly attributed to lower selling prices of steel products.

• Its balance sheet remained solid with zero borrowings, and its net cash position jumped further from RM345.0mn a quarter ago to RM350.0mn.

Impact

• Maintain FY23 to FY25 earnings forecasts.

Outlook

• Overall, despite the global steel prices remaining lacklustre, we expect the sales volume to pick up in the upcoming quarters in tandem with the increasing domestic demand from the construction and industrial sectors.

• The Ministry of Investment, Trade and Industry (MITI) has imposed a 2- year moratorium to allow reassessments to address the numerous challenges the local steel industry faces. On top of that, MITI will update the industry’s direction in line with the New Industrial Master Plan 2030. We are optimistic about this move as it will help to resolve some of the long-standing issues, such as overcapacity and steel dumping.

Valuation

• We take this opportunity to increase the target PE multiple for CSCSTEL from 8x to 9x, as we are more optimistic about the steel industry’s longterm outlook, following a stronger commitment from the government. With that, we revised the target price from RM1.23 to RM1.38 based on 9xCY24 earnings. Upgrade the stock from Hold to Buy.

Source: TA Research - 27 Nov 2023