Initiate buy with a fair value of RM2.14: Global steel demand is expected to grow marginally by 0.5% (financial year 2017 [FY17]) and 1% (FY18) from 1.5 billion tonnes currently, underpinned by economic growth in some regions, particularly in the emerging economies driven by the construction sector.
Meanwhile, global production supply is expected to remain flat at 1.6 billion tonnes in FY17/FY18, with an estimated 2.3 billion tonnes annual capacity and average capacity utilisation of approximately 70%. The ongoing cuts in China’s steel production as well the imposition of safeguard duties by the Malaysian government for imports from China have shown positive signs to local steel players.
There are various steel products, among others, hot rolled coil (HRC) — flat steel, long billets — reinforcement bars and cold rolled coil (CRC) — widely used in the manufacturing sector such as automotive, electrical appliances, furniture and others. Currently, the dominant manufacturer of CRC steel is CSC Steel Holdings Bhd (CSCM).
The positive outlook for steel as well as strong local demand are a major boost to CSCM’s earnings outlook. Being the subsidiary of the largest steel company in Taiwan, CSCM is set to benefit from the uninterrupted sourcing of raw material that is the supply of HRC directly from the parent company, translating into lower cost of doing business.
CSCM will actively continue to improve its existing products through research and development of its parent company for high-grade steel products to cater for the demands of the domestic market. Also, CSCM plans to increase its types of products and to expand its business aggressively to cater for the export market.
As part of the company’s dividend policy, CSCM will pay dividends of at least 50% which translate into yields of around 6% to 8% annually. — AmInvestment Bank, July 31 |
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