Kinsteel net profit rises 165% y-o-y in 1Q10

Written by The Edge Financial Daily Tuesday, 25 May 2010 22:10

KUALA LUMPUR: KINSTEEL BHD [] saw net profit rise 164.9% to RM22.55 million for the quarter ended March 31, 2010 (1Q10) from a net loss of RM34.76 million previously, due to higher steel prices following stronger demand in line with the global economic recovery.

Revenue rose 22.7% to RM540.40 million from RM440.35 million, while earnings per share were 2.40 sen from loss per share of 3.78 sen previously. No dividend was declared for the period.

"On the back of higher revenue, pre-tax results also improved, thus leading to higher margins overall for the group," it said in its results announcement to Bursa Malaysia Securities on Tuesday.

For the quarter under review, its pre-tax profit was RM36.83 million, versus a pre-tax loss of RM93.29 million a year earlier.

On a sequential basis, revenue rose 38% to RM540.4 million from RM390.9 million in 4QFY09 while pre-tax profit was 29.6% lower quarter-on-quarter from RM52.3 million.

The steel manufacturer said total capital commitments being approved and contracted as at the end of the financial period stood at RM41.2 million.

On its prospects for the year ahead, Kinsteel said domestic and regional steel consumption had been rising in tandem with the rebound in CONSTRUCTION [] activities.

"While prices of both iron ore and steel products have increased significantly since 2009, with the recent volatility in iron ore prices, steel prices are expected to track the volatility accordingly," it said, adding the group would monitor the price fluctuations closely and fine-tune its inventory stocking strategy.

AmResearch keeps overweight call on steel sector

Ann Joo is AmResearch's top pick to cash in on the rising steel prices, with a buy call at RM4.50

AmResearch maintained its overweight stance on the steel sector, saying the industry is at the early stages of a steel price upcycle.

Steel consumption is expected to pick up significantly from the first quarter onwards, it noted, as governments within Asia intensify pump-priming initiatives to boost their respective economies.

A weak US dollar is another structural driver for steel demand, while the renewed merger and acquisitions newsflow is another booster.

Ann Joo is AmResearch's top pick to ride on the rising steel prices. It has a buy call on Ann Joo (6556) with a RM4.50 target price.
Ann Joo's structural repositioning as an integrated steelmaker puts it in a sweet spot as an early beneficiary of accelerated infrastructure spending, it noted.

AmResearch is also starting to cover Lion Industries Bhd with a buy call. The stock's fair value is pegged at RM2.50.

"Despite a strong run-up in its share prices of late, Lion Industries is the cheapest stock within our steel sector universe at three to four times price earnings of financial year 2010 and 2011," according to a January 26 AmResearch note.

STEEL – INTEGRATED LONG PRODUCERS (OVERWEIGHT)

STEEL – INTEGRATED LONG PRODUCERS (OVERWEIGHT) Sector Update: Seeking the New Sweet Spot
With steel counters back on the limelight, we made a fundamental review and found ourselves looking at a much improved environment of: (i) rising steel prices and expectation of expanding margins, particularly for iron making, (ii) demand set to surge after the Chinese New Year celebration, driven by real demand and improved buying sentiment on positive price trends, (iii) new yearly benchmark prices for iron ore and coking coal likely to increase by 20% to 30%, which will support ASP, (iv) implementation of stimulus packages worldwide have just begun to spur long steel requirements, (v) huge untapped semi finished steel market in SEA region, and (vi) generally still undemanding valuations. These factors prompt us to maintain our OVERWEIGHT stance on the steel sector and raise fair values across the board. We have BUY calls on Lion Industries, Southern Steel and Masteel, a Trading BUY on Perwaja, but a NEUTRAL call for Kinsteel and a SELL on Ann Joo.

Malaysia steel producers upgraded

Ann Joo Resources Bhd and three other Malaysian steel producers were upgraded at RHB Research Institute Sdn Bhd to reflect improving demand and product prices.

Ann joo was raised to “outperform” from “market perform,” while CSC Steel Holdings Bhd was upgraded to “outperform” from ‘underperform,’’ RHB said in a report today.

Hiap Teck Venture Bhd and Kinsteel Bhd were also raised to “outperform,” it said.

Kinsteel rose to a 17-month high in Kuala Lumpur trading, climbing 3.6 per cent to RM1.14 at 9:08 am local time, set for the highest level since August 8, 2008.



Ann Joo Resources gained 1.9 per cent to RM3.21, CSC Steel rose 1.4 per cent to RM1.46 and Hiap Teck added 2.1 per cent to RM1.46. -- Bloomberg

Kinsteel (5060.KU) at Buy

Maybank Investment Bank Research keeps Kinsteel (5060.KU) at Buy with unchanged MYR1.30 target, pegged to 8X PER for 2011, a year of expected peak demand. "Kinsteel continues to trade at a low 6.4X multiple on 2011 earnings, the year we expect the full impact of major construction works to be felt," says analyst Wong Chew Hann; adds Kinsteel set to capture the rise in demand with upgrades to its billet plant scheduled for completion in mid-2010, while its downstream plant is currently running at 50% capacity; keeps earnings estimates by assuming sales volume of 3.4 million tonnes in 2010 (+22% on-year), and 3.6 million tonnes in 2011, vs forecast 2.8 million tonnes in 2009. Stock last +4.5% at MYR1.1