Results Review

• Excluding the provision for the inventories written down of RM3.3mn, CSCSTEL’s FY23 results missed our expectations as its core earnings of RM46.2mn (+174.6% YoY) made up only 82.2% of our full-year estimate. The negative variance was mainly attributed to lower-than-expected selling price and sales volume.

• The group proposed a first and final dividend of 9.4sen/share (FY22: 3sen/share).

• YoY, FY23 revenue slid by 8.2% to RM1,559.0mn, largely due to lower average selling price. However, core profit more than doubled to RM46.2mn, attributable to effective cost optimisation strategies.

• QoQ, 4QFY23 revenue declined by 6.8% to RM376.6mn, primarily due to weakened demand in Asia resulting from reduced infrastructure activity. The decline was further intensified by lower selling prices and sales volume. Nevertheless, core earnings grew substantially to RM6.8nn from RM0.2mn in 3QFY23, driven by the same abovementioned reason.

• Its balance sheet remained solid with zero borrowings and a net cash position of RM348.8mn.

Impact

• Following the weaker-than-expected results, we reduced our FY24’s earnings estimate by 10.8%, after factoring in the lagging recovery in selling price and sales volume.

• Also, we introduce our new FY26 net earnings forecast of RM68.6mn, projecting an earnings growth of 15.0%.

Outlook

• Looking ahead, the global steel market shows signs of recovery, driven by ongoing global economic revival and a surge in infrastructure projects. However, challenges persist, including surplus production capacity and environmental concerns.

• Despite external challenges, Malaysia’s steel industry is expected to stay resilient, with domestic infrastructure projects gaining momentum. Furthermore, we are optimistic that government trade initiatives and protective measures, including a two-year moratorium designed for reassessments to tackle challenges in the local iron and steel industry and align with the New Industrial Master Plan (NIMP) 2030, will contribute to resolving persistent issues like overcapacity and steel dumping.

Valuation

• Rolling forward our base year valuation to CY25, we arrive at a new target price of RM1.41 (RM1.38 previously) based on a target PER of 9x. Maintain Buy on the stock.

Source: TA Research - 23 Feb 2024