CSC  Steel  (CSC)’s 1QFY13 net earnings of MYR17.5m  were  above  our and  street  estimates  on  higher  sales  and  improved  profit  margin.  The Indonesian authority’s anti-dumping duty against East Asian steel mills spurred  the  group’s sales while  the  increase  in  steel  prices  further boosted its profitability. We revise up our earnings forecast and derive a new MYR1.72 FV. Maintain Trading BUY.

-  Beating  expectations.  CSC  Steel  (CSC)’s  1QFY13  net  profit  of MYR17.5m  (+211.8%  q-o-q,  215.6%  y-o-y)  was  above  our  and consensus estimates. 1QFY13 revenue grew 15.8% q-o-q and 28.8% y-o-y on the back of  higher sales volume of  all its steel products, albeit at lower  selling  prices.  Furthermore,  the  EBITDA  margin  improved  by 440bps q-o-q and 340bps y-o-y, buoyed by lower raw material costs and declining unit production cost due to economies of scale.   

-  Helped  by  anti-dumping  duty.  Indonesia’s  anti-dumping  duty  on  cold rolled  coils  from  East  Asian  steel  mills  benefited CSC’s export business as  the  anti-dumping  duty  does  not  apply  to  Malaysia.  Besides, Management  highlighted  that  monthly  domestic  steel  prices  have  been increasing  in  tandem  with  rising  international  steel  prices  since  the beginning  of  the  year.  This  helped  improve  both  its  sales  and  profit margin.

-  Upgrading  earnings,  FV. Maintain  Trading  BUY.  In  view  of  our  rather conservative  numbers  previously  as  well  as  a  change  in  the  company coverage,  we  are  reviewing  our  valuation  model  and  bumping  up  our earnings forecast for FY13f and FY14f by 31% and 17% respectively. We remain  cautiously  optimistic  on  CSC  given  the  earnings  volatility  in  the steel industry. Maintain Trading BUY, but with our FV lifted to MYR1.72, based on the mean of its 5-year P/BV trading band.

Source: RHB