KUALA LUMPUR (Feb 16): RHB Research Institute is maintaining its Underweight outlook on the steel sector.
It said on Thursday that for the October-December 2011 quarter, most Malaysian steel producers were expected to report losses.
“We believe there is substantial downside risk to 2012 consensus earnings forecasts as well,” it said.
RHB Research said China’s end-demand for steel could turn out to be weaker than expected in the absence of policy easing in its real-estate sector.
It said this was evident in the recent decision by the local authority of a Chinese city to temporarily suspend its home subsidy policy on Feb 12, after introducing it just three days before.
The research house said the pace of consolidation in China’s steel industry has not really gathered momentum in the past few years, resulting in a still highly-fragmented industry with excess and outdated capacity, weighing down on industry margins.
“Decline in raw material costs, particularly iron ore, is likely to be milder than expected due to supply constraints in India (export duty hike), Australia and Brazil (weather disruptions),” it added.
“We have cut FY12-13 EPS forecasts for steel companies under our coverage by 15-23%, largely to reflect lower selling prices for steel products and higher raw material costs.
“We also rationalised our valuation method to PBV (using historical average for each company), for Ann Joo (FV raised to RM1.70, from RM1.40) and Lion Industries (FV raised to RM1.37, from RM1.19),” it said.
It said on Thursday that for the October-December 2011 quarter, most Malaysian steel producers were expected to report losses.
“We believe there is substantial downside risk to 2012 consensus earnings forecasts as well,” it said.
RHB Research said China’s end-demand for steel could turn out to be weaker than expected in the absence of policy easing in its real-estate sector.
It said this was evident in the recent decision by the local authority of a Chinese city to temporarily suspend its home subsidy policy on Feb 12, after introducing it just three days before.
The research house said the pace of consolidation in China’s steel industry has not really gathered momentum in the past few years, resulting in a still highly-fragmented industry with excess and outdated capacity, weighing down on industry margins.
“Decline in raw material costs, particularly iron ore, is likely to be milder than expected due to supply constraints in India (export duty hike), Australia and Brazil (weather disruptions),” it added.
“We have cut FY12-13 EPS forecasts for steel companies under our coverage by 15-23%, largely to reflect lower selling prices for steel products and higher raw material costs.
“We also rationalised our valuation method to PBV (using historical average for each company), for Ann Joo (FV raised to RM1.70, from RM1.40) and Lion Industries (FV raised to RM1.37, from RM1.19),” it said.
