CSC Steel cautioned that prices of steel products have been trending lower since June 2017 and this may impact its profitability in the third quarter as a result of sales margin squeeze.
KUALA LUMPUR: CSC Steel Holdings Bhd
is in a strong position within the sector to reap the benefits from the pick-up in domestic steel demand, and to plug the supply gap, according to Maybank Investment Research.
Maybank Investment Research expects CSC's 57% market share in carbon cold rolled coil steel industry production in Malaysia to grow further due to sustainable domestic demand, restrictions on steel imports and the temporary absence of competition from Megasteel.
The research house forecasts a two-year earnings CAGR of 15% fuelled by recovering steel demand in various key industries in Malaysia; a supply gap to fill amid the absence of Megasteel's output and less cheap imported steel available owing to anti-dumping duties; a favourable CRC steel price outlook; and a better product mix leading to higher margins.
Maybank Investment Research initiates a "buy" call on CSC with a target price of RM2.02.
"Valuation is undemanding; it is trading at below the average of its five-year historical forward PER of 10.5x. We forecast CSC’s earnings to grow at an annual double-digit pace (~15% pa) over the next two years (FY18-19).
"We forecast CSC’s earnings to grow at an annual double-digit pace (~15% pa) over the next two years (FY18-19). Our TP is based on 10.5x FY18F EPS. We also like CSC for its net cash position and strong free cash flow that can reward shareholders with stable dividend payouts," it says.
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