Results Review

• Excluding the one-off provision for net realisable value of RM3.7mn, CSCSTEL’s 1QFY24 core earnings of RM12.4mn met expectations, accounting for 23.8% of our full-year estimates.

• YoY, 1QFY24 revenue declined mildly by 1.9%, owing to reduced sales volume coupled with a lower average selling price (ASP). Consequently, the core earnings decreased by 13.7% to RM12.4mn.

• QoQ, the group posted a significant core earnings improvement of 82.2%, driven by increasing sales volume amidst a growing influx of customers’ orders and a rebound in steel prices.

• Its balance sheet remained solid with zero borrowings and a net cash position of RM314.3mn.

Impact

• Maintain FY24-26F earnings forecasts.

Outlook

• Despite the external challenges posed by overcapacity and concerns over subdued ASP, we remain cautiously optimistic about the domestic steel market outlook. This optimism is supported by the rollout of large-scale infrastructure projects. Additionally, demand for steel products is expected to remain resilient due to the revitalisation of the domestic property sector, driven by new housing project launches and increased construction activities.

• Moreover, we are confident that government trade initiatives and protective measures, including a two-year moratorium designed for reassessments, will help tackle challenges in the local iron and steel industry. These measures aim to address persistent issues such as overcapacity and steel dumping, as well as align with the New Industrial Master Plan (NIMP) 2030.

Valuation

• Considering the favourable outlook, we raise our target PER to 11x from 9x against CY25 earnings, resulting in a new target price of RM1.73 (RM1.41 previously). Maintain Buy on the stock.

Source: TA Research - 31 May 2024