At 9.59am trading Kinsteel Bhd, a steelmaker, dropped 1 per cent to 49 sen. The company is “streamlining” its downstream business operations to help cut costs and is reviewing various options for a unit that produces and sells steel beams. -- Bloomberg
Showing posts with label KINSTEL (5060). Show all posts
Showing posts with label KINSTEL (5060). Show all posts
Friday, 16 March 2012
MIDF maintains Neutral call for Kinsteel, TP remains at 51 sen
KUALA LUMPUR (March 16) : MIDF Amanah Investment Bank Bhd is keeping its Neutral call on KINSTEEL BHD [] with an unchanged target price of 51 sen.
In a note on Friday, MIDF said it is maintaining its FY12 earnings forecasts for Kinsteel as the steel products manufacturer has yet to finalise details on how it will streamline its downstream operations.
“We are positive on the effort to streamline its downstream business. Although this move will impact its top line negatively, but would be marginally positive on the bottom line,” MIDF said.
Kinsteel shares closed 0.5 sen higher at 49.5 sen on Thursday.
In a note on Friday, MIDF said it is maintaining its FY12 earnings forecasts for Kinsteel as the steel products manufacturer has yet to finalise details on how it will streamline its downstream operations.
“We are positive on the effort to streamline its downstream business. Although this move will impact its top line negatively, but would be marginally positive on the bottom line,” MIDF said.
Kinsteel shares closed 0.5 sen higher at 49.5 sen on Thursday.
Stocks to watch: Zelan, Selangor Dredging, Freight Management, Century Logistics
KUALA LUMPUR (March 16) : Global economic growth concerns may continue to weigh on Malaysian stocks on Friday as the local bourse sees less trading participation due to the on-going school holidays.
Analysts said a higher trading volume is crucial to sustain gains in the 30-stock FBM KLCI, against the backdrop of weaker economic sentiments in China which had pushed Asian bourses into the red.
“Higher volume is vital for more sustainable gains (in the KLCI),” Hong Leong Investment Bank Research wrote in a note.
According to Hong Leong Research, unless the FBM KLCI closes above the 1,580 and 1,585 levels and registers average daily trading volume of between 1.8 billion and 1.9 billion shares in the next few days, the research firm is reiterating its cautious view on the market.
On Thursday, the KLCI closed higher in late buying on Thursday, underpinned by gains in CIMB and Maybank amid volatile trading.
The KLCI rose 3.67 points or 0.2% to finish at 1,579.38. Turnover was 1.36 billion shares worth RM1.73 billion while the broader market was cautious, with 296 gainers versus 443 decliners while 367 stocks were unchanged.
Among the stocks to watch are ZELAN BHD [], SELANGOR DREDGING BHD [], Kinsteel Bhd, logistics firms Freight Management Holdings Bhd and CENTURY LOGISTICS HOLDINGS BHD [], besides Top Glove Corp Bhd, Taliworks Corp Bhd and Eversendai Corp Bhd.
Zelan’s 95%-owned Terminal Bersepadu Gombak Sdn Bhd (Tegas) has secured a 25 year and three months concession from the government for the Gombak Integrated Transport Terminal.
Tegas would undertake the RM307.37 million project on a build-lease-manage-operate-transfer basis via the public private partnership.
Selangor Dredging plans to launch a housing project with an estimated gross development value of RM150 million in Gombak.
It is buying three pieces of leasehold land measuring nearly 36,000 sq metres from Superior Dignity Sdn. Bhd for RM34.50 million.
Kinsteel is streamlining its downstream business operations, especially its 51% owned Perfect Channel Sdn Bhd, which has been affected by weak steel prices and rising material costs.
Kinsteel said on Thursday that Perfect Channel’s core activities were manufacturing and trading of steel beams, bars, wire rods and other steel products.
RHB Research Institute upgraded its recommendations for Freight Management and Century Logistics to Outoperform from Market Perform, and raised the fair values for both stocks. This is in anticipation that both logistics firms will benefit from a recovery in global trade.
Freight Management is deemed fairly valued at RM1.05 compared to the 92 sen estimated previously while Century Logistics has a potential reach RM2.09 compared to the previous target price of RM1.78, according to RHB Research.
Shares of both logistics firms closed unchanged on Thursday. Freight Management finished at 89.5sen while Century Logistics settled at RM1.78
Top Glove’s net profit in the second quarter ended Feb 29, 2012 (2QFY12) more than doubled (110%) to RM53.46 million from RM25.41 million a year earlier, as higher sales, and cheaper raw materials boosted the rubber glove manufacturer’s bottom line, the company told the exchange. Top Glove shares rose 12 sen to RM4.92.
Taliworks set up a joint venture with L.G.B. Engineering Sdn Bhd to construct water treatment facilities in Selangor. Taliworks closed 1.5 sen lower at 93.5 sen.
Eversendai executive chairman and managing director, Datuk A.K. Nathan expects the company to register an annual turnover of RM2 billion within the next five years. The company posted revenue of RM1.03 billion in financial year ended Dec 31, 2011. Eversendai shares declined one sen to RM1.67.
Analysts said a higher trading volume is crucial to sustain gains in the 30-stock FBM KLCI, against the backdrop of weaker economic sentiments in China which had pushed Asian bourses into the red.
“Higher volume is vital for more sustainable gains (in the KLCI),” Hong Leong Investment Bank Research wrote in a note.
According to Hong Leong Research, unless the FBM KLCI closes above the 1,580 and 1,585 levels and registers average daily trading volume of between 1.8 billion and 1.9 billion shares in the next few days, the research firm is reiterating its cautious view on the market.
On Thursday, the KLCI closed higher in late buying on Thursday, underpinned by gains in CIMB and Maybank amid volatile trading.
The KLCI rose 3.67 points or 0.2% to finish at 1,579.38. Turnover was 1.36 billion shares worth RM1.73 billion while the broader market was cautious, with 296 gainers versus 443 decliners while 367 stocks were unchanged.
Among the stocks to watch are ZELAN BHD [], SELANGOR DREDGING BHD [], Kinsteel Bhd, logistics firms Freight Management Holdings Bhd and CENTURY LOGISTICS HOLDINGS BHD [], besides Top Glove Corp Bhd, Taliworks Corp Bhd and Eversendai Corp Bhd.
Zelan’s 95%-owned Terminal Bersepadu Gombak Sdn Bhd (Tegas) has secured a 25 year and three months concession from the government for the Gombak Integrated Transport Terminal.
Tegas would undertake the RM307.37 million project on a build-lease-manage-operate-transfer basis via the public private partnership.
Selangor Dredging plans to launch a housing project with an estimated gross development value of RM150 million in Gombak.
It is buying three pieces of leasehold land measuring nearly 36,000 sq metres from Superior Dignity Sdn. Bhd for RM34.50 million.
Kinsteel is streamlining its downstream business operations, especially its 51% owned Perfect Channel Sdn Bhd, which has been affected by weak steel prices and rising material costs.
Kinsteel said on Thursday that Perfect Channel’s core activities were manufacturing and trading of steel beams, bars, wire rods and other steel products.
RHB Research Institute upgraded its recommendations for Freight Management and Century Logistics to Outoperform from Market Perform, and raised the fair values for both stocks. This is in anticipation that both logistics firms will benefit from a recovery in global trade.
Freight Management is deemed fairly valued at RM1.05 compared to the 92 sen estimated previously while Century Logistics has a potential reach RM2.09 compared to the previous target price of RM1.78, according to RHB Research.
Shares of both logistics firms closed unchanged on Thursday. Freight Management finished at 89.5sen while Century Logistics settled at RM1.78
Top Glove’s net profit in the second quarter ended Feb 29, 2012 (2QFY12) more than doubled (110%) to RM53.46 million from RM25.41 million a year earlier, as higher sales, and cheaper raw materials boosted the rubber glove manufacturer’s bottom line, the company told the exchange. Top Glove shares rose 12 sen to RM4.92.
Taliworks set up a joint venture with L.G.B. Engineering Sdn Bhd to construct water treatment facilities in Selangor. Taliworks closed 1.5 sen lower at 93.5 sen.
Eversendai executive chairman and managing director, Datuk A.K. Nathan expects the company to register an annual turnover of RM2 billion within the next five years. The company posted revenue of RM1.03 billion in financial year ended Dec 31, 2011. Eversendai shares declined one sen to RM1.67.
Thursday, 15 March 2012
Kinsteel streamlining downstream ops, one-off costs of RM9m
KUALA LUMPUR (March 15): KINSTEEL BHD [] is streamlining its downstream business operations, especially its 51% owned Perfect Channel Sdn Bhd, which has been affected by weak steel prices and rising material costs.
Kinsteel said on Thursday that Perfect Channel’s core activities were manufacturing and trading of steel beams, bars, wire rods and other steel products.
However, over the past few years, Perfect Channel was affected by weaker-than-expected global steel demand and rising material costs and also higher transportation cost for the raw.
“Hence, the streamlining of business operations is a strategic move to consolidate Kinsteel group’s downstream business which is in line with Kinsteel group’s on-going cost savings exercise across its industry value chain,” it said.
The streamlining, it said, would reduce the group’s turnover but it would not have a material adverse impact on the profitability in the future.
“Hence, the group expects a one off cost of approximately RM9 million to compensate its existing staff and workers affected by the streamlining of business operations,” it said.
Kinsteel said on Thursday that Perfect Channel’s core activities were manufacturing and trading of steel beams, bars, wire rods and other steel products.
However, over the past few years, Perfect Channel was affected by weaker-than-expected global steel demand and rising material costs and also higher transportation cost for the raw.
“Hence, the streamlining of business operations is a strategic move to consolidate Kinsteel group’s downstream business which is in line with Kinsteel group’s on-going cost savings exercise across its industry value chain,” it said.
The streamlining, it said, would reduce the group’s turnover but it would not have a material adverse impact on the profitability in the future.
“Hence, the group expects a one off cost of approximately RM9 million to compensate its existing staff and workers affected by the streamlining of business operations,” it said.
Friday, 10 February 2012
CIMB Research has technical buy on Kinsteel at 56.5 sen
KUALA LUMPUR (Feb 10): CIMB Equities Research has a technical buy on KINSTEEL BHD [] at 56.5 sen at which it is trading at a price-to-book value of 0.7 times.
It said on Friday Kinsteel broke out of its bullish flag pattern yesterday on strong volume.
“We see this as a prelude to more upside ahead. If we are right, prices are likely to edge closer towards 60 sen and 63 sen soon. The 200-day SMA is also a magnet for prices,” it said.
CIMB Research said the indicators remain compelling. MACD signal line is still rising while RSI has also hooked upward.
“As long as prices stay above the RM0.525, any pullback is an opportunity to accumulate,” it said.
It said on Friday Kinsteel broke out of its bullish flag pattern yesterday on strong volume.
“We see this as a prelude to more upside ahead. If we are right, prices are likely to edge closer towards 60 sen and 63 sen soon. The 200-day SMA is also a magnet for prices,” it said.
CIMB Research said the indicators remain compelling. MACD signal line is still rising while RSI has also hooked upward.
“As long as prices stay above the RM0.525, any pullback is an opportunity to accumulate,” it said.
Friday, 3 February 2012
Perwaja Steel RM400m notes downgraded
KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has downgraded Perwaja Steel Sdn Bhd's RM400 million Murabahah Medium-Term Notes(MMTNs) programme from AID to A-ID with a negative outlook.
The rating action, which affected RM160 million of outstanding MMTNs under the programme, was premised on the prolonged decline in the steel maker's operating performance," said the rating agency in a statement today.
It said Perwaja's strategic initiative to integrate backwards into iron ore processing would likely contribute to better longer-term performance.
However, MARC believed the uncertain industry conditions and ongoing pressure on Perwaja's profitability would make it difficult for the steel maker to improve its credit measures to a level commensurate with its previously assigned rating within the next 12 to 24 months.
"Hence, this view is reflected in our negative outlook on the company," it added. -- BERNAMA
The rating action, which affected RM160 million of outstanding MMTNs under the programme, was premised on the prolonged decline in the steel maker's operating performance," said the rating agency in a statement today.
It said Perwaja's strategic initiative to integrate backwards into iron ore processing would likely contribute to better longer-term performance.
However, MARC believed the uncertain industry conditions and ongoing pressure on Perwaja's profitability would make it difficult for the steel maker to improve its credit measures to a level commensurate with its previously assigned rating within the next 12 to 24 months.
"Hence, this view is reflected in our negative outlook on the company," it added. -- BERNAMA
MARC lowers Perwaja Steel RM400m debt notes, outlook negative
KUALA LUMPUR (Feb 3): Malaysian Rating Corporation Bhd (MARC) lowered its rating on Perwaja Steel Sdn Bhd’s (Perwaja) RM400.0 million Murabahah medium term notes (MMTN) programme from AID to A-ID.
The rating agency said on Friday the rating action affected RM160 million of outstanding debt notes under the programme while the outlook on the rating was negative.
MARC said the rating action was due to the steelmaker’s prolonged decline in the operating performance.
The rating agency also expected a deterioration in Perwaja’s leverage and cash flow coverage credit metrics as a result of incremental debt to finance capital expenditure on an iron ore concentration and pelletising plant.
“While Perwaja’s strategic initiative to integrate backwards into iron ore processing would likely contribute to better longer-term performance, MARC believes that the uncertain industry conditions and ongoing pressure on Perwaja’s profitability will make it difficult for the steelmaker to improve its credit measures to a level commensurate with its previously assigned rating within the next 12 to 24 months,” it said.
Hence, MARC said this view was reflected in the negative outlook that it was maintaining on the rating.
The rating reflected Perwaja’s vulnerability to decreases in upstream steel consumption and lower steel prices, its domestic market revenue concentration and its sensitivity to raw material price fluctuations, as evidenced by its lacklustre sales and reported losses for two consecutive years and the nine month period ending September 2011 (9MFY2011).
MARC also acknowledges the financial support from Perwaja’s ultimate holding company KINSTEEL BHD [], which together with reduced working capital requirements at the steelmaker, have helped to limit the deterioration in Perwaja’s financial profile and allowed the company to exhibit improved cash flow coverage measures in a challenging operating environment.
The rating agency said on Friday the rating action affected RM160 million of outstanding debt notes under the programme while the outlook on the rating was negative.
MARC said the rating action was due to the steelmaker’s prolonged decline in the operating performance.
The rating agency also expected a deterioration in Perwaja’s leverage and cash flow coverage credit metrics as a result of incremental debt to finance capital expenditure on an iron ore concentration and pelletising plant.
“While Perwaja’s strategic initiative to integrate backwards into iron ore processing would likely contribute to better longer-term performance, MARC believes that the uncertain industry conditions and ongoing pressure on Perwaja’s profitability will make it difficult for the steelmaker to improve its credit measures to a level commensurate with its previously assigned rating within the next 12 to 24 months,” it said.
Hence, MARC said this view was reflected in the negative outlook that it was maintaining on the rating.
The rating reflected Perwaja’s vulnerability to decreases in upstream steel consumption and lower steel prices, its domestic market revenue concentration and its sensitivity to raw material price fluctuations, as evidenced by its lacklustre sales and reported losses for two consecutive years and the nine month period ending September 2011 (9MFY2011).
MARC also acknowledges the financial support from Perwaja’s ultimate holding company KINSTEEL BHD [], which together with reduced working capital requirements at the steelmaker, have helped to limit the deterioration in Perwaja’s financial profile and allowed the company to exhibit improved cash flow coverage measures in a challenging operating environment.
Friday, 27 January 2012
Uncertainty in sector
Steel sector
Maintain neutral: The latest numbers from the World Steel Association confirmed our worries about the global steel industry. Global steel production was 1.53 billion tonnes in 2011, up by only 6.8% compared with 15% year-on-year in 2010. Although steel production in China rose by 4.6% in December to 52.2 million tonnes, it was still 13% lower than the peak in May 2011 of 60.2 million tonnes.
The world’s steel utilisation rate also trended lower at 73.4% in November 2011, the lowest since April 2011. We believe the unresolved European debt crisis coupled with a slower property market in China are among the factors that led to the weakening global steel demand. As these risks are likely to persist in the foreseeable future, we expect the weakening demand trend to continue for the rest of the year.
Local growth in steel demand continues to be driven by ongoing construction projects.
We estimate about RM63 billion in total project value under the Economic Transformation Programme (ETP) and 10th Malaysia Plan will be awarded in 2H12. This should boost demand for steel products this year.
Among the projects are the Klang Valley MRT Sungai Buloh-Kajang Line (RM20 billion), Gemas- Johor Baru double tracking railway (RM8 billion), Menara Warisan (RM5 billion), River of Life (RM4 billion), KL International Financial District (RM26 billion).
China is the biggest consumer of iron ore, coal and copper. The country is also the biggest steel producer, accounting for 45% of world steel production. According to our economist, China is still addressing inflation by tightening lending and curbing investment to prevent overheating and inflation.
More importantly, China’s government continues to curb the residential real estate market, thus bringing down its home prices. As a result of the tightening policy in the property market, China’s steel millers have faced overcapacity, which dragged down steel prices.
We believe there is a possibility that China’s oversupply situation may lead to cheap imports in Malaysia. With steel demand in China staying sluggish, we would not be surprised if there are elements of “dumping” in China’s export strategy moving forward.
The presence of cheap imports will adversely impact local steel players’ earnings.
The prices of upstream/upper-midstream steel products (billets, steel bar, and wire rod) are still depressed. Billet and steel bar prices are now trading at 7.4% and 8% below their one-year historical average prices. In addition, prices of scrap metal, the raw material for steelmaking, have rebounded after the huge decline since September 2011. This means that the margins of billet and steel bar producers are likely to narrow, potentially causing steel producers to report a net loss in the upcoming quarterly results.
Prospects are better for steel millers using iron ore as their feedstock, compared with those using scrap metal. Indeed, the spread between long steel product (billet) prices and iron ore has widened to US$499 (RM1,517) per tonne from US$475 two months ago.
Currently, most Malaysian steel millers are using scrap metal as their feedstock for steelmaking, except for Ann Joo Resources Bhd.
In October 2011, the group pre-commenced its mini integrated blast furnace. With the blast furnace in place, Ann Joo can flexibly switch between scrap metal or iron ore (according to market conditions) for its steel manufacturing. We have a “neutral” call on Ann Joo with a target price of RM1.78.
So far, the share prices of steel counters under our coverage — Lion Industries Corp Bhd, Kinsteel Bhd and Ann Joo have outperformed the KLCI. This was due to the short rally prior to Chinese New Year. Although we are positive on local steel, we do not expect the prices of steel stocks to recover significantly for the rest of this year as industry fundamentals are still weak. Steel product prices have yet to recover while raw material prices are trending higher.
We reiterate our “neutral” call on both Kinsteel (target price: RM0.51) and Ann Joo (TP: RM1.78) and “sell” call with an unchanged TP of RM1.14 on Lion Industries. — MIDF Research
Maintain neutral: The latest numbers from the World Steel Association confirmed our worries about the global steel industry. Global steel production was 1.53 billion tonnes in 2011, up by only 6.8% compared with 15% year-on-year in 2010. Although steel production in China rose by 4.6% in December to 52.2 million tonnes, it was still 13% lower than the peak in May 2011 of 60.2 million tonnes.
The world’s steel utilisation rate also trended lower at 73.4% in November 2011, the lowest since April 2011. We believe the unresolved European debt crisis coupled with a slower property market in China are among the factors that led to the weakening global steel demand. As these risks are likely to persist in the foreseeable future, we expect the weakening demand trend to continue for the rest of the year.
Local growth in steel demand continues to be driven by ongoing construction projects.
We estimate about RM63 billion in total project value under the Economic Transformation Programme (ETP) and 10th Malaysia Plan will be awarded in 2H12. This should boost demand for steel products this year.
The RM4 billion River of Life project in Kuala Lumpur should boost demand for
steel products this year.
steel products this year.
Among the projects are the Klang Valley MRT Sungai Buloh-Kajang Line (RM20 billion), Gemas- Johor Baru double tracking railway (RM8 billion), Menara Warisan (RM5 billion), River of Life (RM4 billion), KL International Financial District (RM26 billion).
China is the biggest consumer of iron ore, coal and copper. The country is also the biggest steel producer, accounting for 45% of world steel production. According to our economist, China is still addressing inflation by tightening lending and curbing investment to prevent overheating and inflation.
More importantly, China’s government continues to curb the residential real estate market, thus bringing down its home prices. As a result of the tightening policy in the property market, China’s steel millers have faced overcapacity, which dragged down steel prices.
We believe there is a possibility that China’s oversupply situation may lead to cheap imports in Malaysia. With steel demand in China staying sluggish, we would not be surprised if there are elements of “dumping” in China’s export strategy moving forward.
The presence of cheap imports will adversely impact local steel players’ earnings.
The prices of upstream/upper-midstream steel products (billets, steel bar, and wire rod) are still depressed. Billet and steel bar prices are now trading at 7.4% and 8% below their one-year historical average prices. In addition, prices of scrap metal, the raw material for steelmaking, have rebounded after the huge decline since September 2011. This means that the margins of billet and steel bar producers are likely to narrow, potentially causing steel producers to report a net loss in the upcoming quarterly results.
Prospects are better for steel millers using iron ore as their feedstock, compared with those using scrap metal. Indeed, the spread between long steel product (billet) prices and iron ore has widened to US$499 (RM1,517) per tonne from US$475 two months ago.
Currently, most Malaysian steel millers are using scrap metal as their feedstock for steelmaking, except for Ann Joo Resources Bhd.
In October 2011, the group pre-commenced its mini integrated blast furnace. With the blast furnace in place, Ann Joo can flexibly switch between scrap metal or iron ore (according to market conditions) for its steel manufacturing. We have a “neutral” call on Ann Joo with a target price of RM1.78.
So far, the share prices of steel counters under our coverage — Lion Industries Corp Bhd, Kinsteel Bhd and Ann Joo have outperformed the KLCI. This was due to the short rally prior to Chinese New Year. Although we are positive on local steel, we do not expect the prices of steel stocks to recover significantly for the rest of this year as industry fundamentals are still weak. Steel product prices have yet to recover while raw material prices are trending higher.
We reiterate our “neutral” call on both Kinsteel (target price: RM0.51) and Ann Joo (TP: RM1.78) and “sell” call with an unchanged TP of RM1.14 on Lion Industries. — MIDF Research
Thursday, 12 January 2012
Building materials: Cement preferred for better fundamentals
Building materials
Maintain neutral: We expect the construction sector to be buoyant on the whole in 2012, but the steel sector will be in a contraction mode.
The cement sector is expected to be more shielded through minimal import threat and falling coal cost. Lafarge Malayan Cement Bhd (“buy”, target price: RM7.60) is our top proxy to the construction sector.
We maintain our “sell” call on Ann Joo Resources Bhd (TP RM1.30) and “hold” call on Kinsteel Bhd (TP 49 sen).
Local building materials demand was subdued from 2009 to 2011 due to low government construction spending. But the momentum is expected to pick up in 2012 as large-scale Economic Transformation Programme (ETP) projects (the MRT, Kuala Lumpur International Financial District, Warisan Merdeka, Sungai Buloh Rubber Research Institute land) are expected to be awarded progressively from 1Q12 onwards.
On the flip side, the pick-up in demand from the ETP projects could be partially negated by a softer property market (which accounts for about 40% of the construction sector). As newly awarded projects take three to six months to hit the ground, we expect the building materials sector to only see meaningful demand growth in 2H12, at the earliest.
In our view, the cement sector offers better fundamentals due to its oligopolistic market structure. Though new capacity is expected to come onstream in early 2013 (+7% in Peninsular Malaysia’s capacity), we expect this to be well-absorbed by demand growth.
Additionally, there is earnings upside for cement players in view of falling coal costs (December 2011: -20% year-to-date). With energy accounting for about 40% of production cost, we estimate that every 1% decline in coal cost contributes to a 0.8% rise in earnings for Lafarge.
Despite expectations of stronger local demand growth in 2H12, we see downside to steelmakers’ earnings owing to a weaker export market (which accounts for 30% to 40% of sales volume).
We are of the opinion that local demand growth will not make up for the export loss in 2012 and margins may be squeezed by a surplus in global supply. We also see dumping risk from China steelmakers, resulting in industry-wide losses, similar to 2005.
We have a “buy” call for Lafarge and derive our TP of RM7.60 by pegging the stock at its peak 17 times 2013 price earnings ratio. The cement maker is also supported by a high net dividend yield of 5.6%. Ann Joo is a “sell” (TP RM1.30) while Kinsteel is a “hold” (TP 49 sen) as we peg the stocks to their trough cycle price to book value valuations of 0.6 times and 0.55 times. We think there is potential upside to Kinsteel’s share price if the official mining award comes through, potentially in 2012. — Maybank IB Research, Jan 11
This article appeared in The Edge Financial Daily, January 12, 2012.
Maintain neutral: We expect the construction sector to be buoyant on the whole in 2012, but the steel sector will be in a contraction mode.
The cement sector is expected to be more shielded through minimal import threat and falling coal cost. Lafarge Malayan Cement Bhd (“buy”, target price: RM7.60) is our top proxy to the construction sector.
We maintain our “sell” call on Ann Joo Resources Bhd (TP RM1.30) and “hold” call on Kinsteel Bhd (TP 49 sen).
Local building materials demand was subdued from 2009 to 2011 due to low government construction spending. But the momentum is expected to pick up in 2012 as large-scale Economic Transformation Programme (ETP) projects (the MRT, Kuala Lumpur International Financial District, Warisan Merdeka, Sungai Buloh Rubber Research Institute land) are expected to be awarded progressively from 1Q12 onwards.
On the flip side, the pick-up in demand from the ETP projects could be partially negated by a softer property market (which accounts for about 40% of the construction sector). As newly awarded projects take three to six months to hit the ground, we expect the building materials sector to only see meaningful demand growth in 2H12, at the earliest.
In our view, the cement sector offers better fundamentals due to its oligopolistic market structure. Though new capacity is expected to come onstream in early 2013 (+7% in Peninsular Malaysia’s capacity), we expect this to be well-absorbed by demand growth.
Additionally, there is earnings upside for cement players in view of falling coal costs (December 2011: -20% year-to-date). With energy accounting for about 40% of production cost, we estimate that every 1% decline in coal cost contributes to a 0.8% rise in earnings for Lafarge.
Despite expectations of stronger local demand growth in 2H12, we see downside to steelmakers’ earnings owing to a weaker export market (which accounts for 30% to 40% of sales volume).
We are of the opinion that local demand growth will not make up for the export loss in 2012 and margins may be squeezed by a surplus in global supply. We also see dumping risk from China steelmakers, resulting in industry-wide losses, similar to 2005.
We have a “buy” call for Lafarge and derive our TP of RM7.60 by pegging the stock at its peak 17 times 2013 price earnings ratio. The cement maker is also supported by a high net dividend yield of 5.6%. Ann Joo is a “sell” (TP RM1.30) while Kinsteel is a “hold” (TP 49 sen) as we peg the stocks to their trough cycle price to book value valuations of 0.6 times and 0.55 times. We think there is potential upside to Kinsteel’s share price if the official mining award comes through, potentially in 2012. — Maybank IB Research, Jan 11
This article appeared in The Edge Financial Daily, January 12, 2012.
Thursday, 5 January 2012
Stocks to watch: JCY, Dialog, AirAsia, MAS
KUALA LUMPUR (Jan 5): Despite the second day of pullback on the local stock market , especially blue chips on Wednesday, the overall market sentiment continues to be firm due to the "January effect" while fresh corporate news could stir buying interest in selected stocks at least in the short-term.
However, RHB Research Institute was cautious as due to the overhanging concerns of the second half of 2011, it was fearful that this could be another year of “more of the same”.
However, it did note the possibility of two market rallies in the near term, which were the “January effect” and “Chinese New Year rally”.
RHB Research said in a note on Wednesday that while the January effect has been evident every year for the last 10 years (and has led to a positive annual return in seven of the 10 years), the historical data for the pre-Lunar New Year rally is less conclusive (but the post-festival returns have actually been negative in seven of the last 10 years).
“Beyond January, we believe 2012 will be influenced by 2011 legacy issues. We thus continue to advocate a cautious stance, although we also recommend accumulating fundamentally-robust stocks on weakness for tactical plays with a longer-term view towards the recovery that will undoubtedly follow,” it said.
As for the stocks which could see trading interest on Thursday are hard-disk drive manufacturer JCY International Bhd, DIALOG GROUP BHD [], AIRASIA BHD [] and MALAYSIAN AIRLINE SYSTEM BHD [] (MAS).
JCY International Bhd, whose share price had surged in recent weeks, has stated that the group is likely to record a surge in earnings for the quarter ended Dec 31, 2011.
To cater for the increase in the component demands from the company’s major customers, JCY allocated RM300 million over the next 24 months period to expand its facilities in Malaysia, Thailand and China.
Dialog could also see trading interest as its rights shares go ex on Thursday.
In December, Dialog fixed the rights shares at RM1.20 each and the exercise price of the warrants at RM2.40 each.
The issue price would be a discount of about 46% to the theoretical ex-rights price of RM2.23 per share, based on the five-day volume-weighted average market price (VWAMP) up to Dec 14 of RM2.43.
Meanwhile, the Securities Commission has approved the proposed warrants exchange between AirAsia and MAS under a tie-up between both airlines. The airlines said the SC has approved the warrants exchange under the Capital Markets and Services Act 2007 of Malaysia.
Priceworth International Bhd’s unit has been appointed a contractor to carry out logging activities on Kolombangara Island, in the western province of Solomon Islands.
Priceworth said its unit, Ligreen (SI) Ltd had sealed a logging management and TECHNOLOGY [] agreement with Success Company Ltd to undertake the logging at a concession site measuring 1,053 ha.
KINSTEEL BHD [] had on Wednesday paid RM70 million to Perwaja Holdings Bhd which was the first payment for the subscription of the RCULS by Kinsteel. The balance of the RM210.0 million would be paid within 21 business days.
Following the first payment, Perwaja had provisionally allotted RM280.0 million nominal value of RCULS to Kinsteel.
However, RHB Research Institute was cautious as due to the overhanging concerns of the second half of 2011, it was fearful that this could be another year of “more of the same”.
However, it did note the possibility of two market rallies in the near term, which were the “January effect” and “Chinese New Year rally”.
RHB Research said in a note on Wednesday that while the January effect has been evident every year for the last 10 years (and has led to a positive annual return in seven of the 10 years), the historical data for the pre-Lunar New Year rally is less conclusive (but the post-festival returns have actually been negative in seven of the last 10 years).
“Beyond January, we believe 2012 will be influenced by 2011 legacy issues. We thus continue to advocate a cautious stance, although we also recommend accumulating fundamentally-robust stocks on weakness for tactical plays with a longer-term view towards the recovery that will undoubtedly follow,” it said.
As for the stocks which could see trading interest on Thursday are hard-disk drive manufacturer JCY International Bhd, DIALOG GROUP BHD [], AIRASIA BHD [] and MALAYSIAN AIRLINE SYSTEM BHD [] (MAS).
JCY International Bhd, whose share price had surged in recent weeks, has stated that the group is likely to record a surge in earnings for the quarter ended Dec 31, 2011.
To cater for the increase in the component demands from the company’s major customers, JCY allocated RM300 million over the next 24 months period to expand its facilities in Malaysia, Thailand and China.
Dialog could also see trading interest as its rights shares go ex on Thursday.
In December, Dialog fixed the rights shares at RM1.20 each and the exercise price of the warrants at RM2.40 each.
The issue price would be a discount of about 46% to the theoretical ex-rights price of RM2.23 per share, based on the five-day volume-weighted average market price (VWAMP) up to Dec 14 of RM2.43.
Meanwhile, the Securities Commission has approved the proposed warrants exchange between AirAsia and MAS under a tie-up between both airlines. The airlines said the SC has approved the warrants exchange under the Capital Markets and Services Act 2007 of Malaysia.
Priceworth International Bhd’s unit has been appointed a contractor to carry out logging activities on Kolombangara Island, in the western province of Solomon Islands.
Priceworth said its unit, Ligreen (SI) Ltd had sealed a logging management and TECHNOLOGY [] agreement with Success Company Ltd to undertake the logging at a concession site measuring 1,053 ha.
KINSTEEL BHD [] had on Wednesday paid RM70 million to Perwaja Holdings Bhd which was the first payment for the subscription of the RCULS by Kinsteel. The balance of the RM210.0 million would be paid within 21 business days.
Following the first payment, Perwaja had provisionally allotted RM280.0 million nominal value of RCULS to Kinsteel.
Wednesday, 28 December 2011
OSK upbeat on Asian steel market
The Asian steel market may hold up better in the future than in other parts of the world although demand could be further
dampened by a weak economic outlook, says OSK Research Sdn Bhd.
The research firm also expected long steel producers to fare better as governments worldwide cannot avoid carrying out some pump-priming activities, which could help spur demand for long steel.
"On the local front, steel mills are waiting with bated breath the rollout of "mega" government projects under the Economic Transformation Programme which is expected to boost steel demand.
"However, concerns still linger over its smooth and successful execution," it said in a statement today.
OSK recently revised lower some of its estimates due to the global economy sluggishness.
"We are trimming our fair values across the board as the steel stocks currently offer limited price upside.
"We are "neutral" on most counters except Perwaja and Kinsteel, on which we add on a 10 per cent discounted cash flow valuation on their potential in securing the iron ore mine as well as our "buy" and "trading buy" recommendations, respectively," it added. -- BERNAMA
dampened by a weak economic outlook, says OSK Research Sdn Bhd.
The research firm also expected long steel producers to fare better as governments worldwide cannot avoid carrying out some pump-priming activities, which could help spur demand for long steel.
"On the local front, steel mills are waiting with bated breath the rollout of "mega" government projects under the Economic Transformation Programme which is expected to boost steel demand.
"However, concerns still linger over its smooth and successful execution," it said in a statement today.
OSK recently revised lower some of its estimates due to the global economy sluggishness.
"We are trimming our fair values across the board as the steel stocks currently offer limited price upside.
"We are "neutral" on most counters except Perwaja and Kinsteel, on which we add on a 10 per cent discounted cash flow valuation on their potential in securing the iron ore mine as well as our "buy" and "trading buy" recommendations, respectively," it added. -- BERNAMA
Tuesday, 29 November 2011
HDBSVR sees Bursa Malaysia playing catch-up
KUALA LUMPUR (Nov 29): Hwang DBS Vickers Research (HDBSVR) said while Bursa Malaysia could play catch-up with key regional markets on Tuesday and following the strong overnight close on Wall Street.
It said on Tuesday that while Bursa Malaysia was closed on Monday for a public holiday, regional bourses mostly ended in positive territory with India’s benchmark index up 3.0%, China shares listed in Hong Kong added 2.3% and South Korea’s Kospi 2.2%.
Over on Wall Street, key US equity indices jumped between 2.6% and 3.5% last night following buoyant retail sales and hopes that the European leaders would act harder to resolve the region’s sovereign debt crisis.
“Consequently, the benchmark FBM KLCI could play catch-up today. After a plunge of 22.8-point or 1.6% last week, the bellwether is expected to stage a technical rebound towards the first resistance level of 1,445 ahead,” it said.
The positive market backdrop will probably lift large caps like Sime Darby and IJM Corporation, which have announced their latest quarterly results on Friday evening that came in within expectations.
“On the other hand, MRCB and Kinsteel may see selling pressures after reporting below par quarterly earnings,” it said.
It said on Tuesday that while Bursa Malaysia was closed on Monday for a public holiday, regional bourses mostly ended in positive territory with India’s benchmark index up 3.0%, China shares listed in Hong Kong added 2.3% and South Korea’s Kospi 2.2%.
Over on Wall Street, key US equity indices jumped between 2.6% and 3.5% last night following buoyant retail sales and hopes that the European leaders would act harder to resolve the region’s sovereign debt crisis.
“Consequently, the benchmark FBM KLCI could play catch-up today. After a plunge of 22.8-point or 1.6% last week, the bellwether is expected to stage a technical rebound towards the first resistance level of 1,445 ahead,” it said.
The positive market backdrop will probably lift large caps like Sime Darby and IJM Corporation, which have announced their latest quarterly results on Friday evening that came in within expectations.
“On the other hand, MRCB and Kinsteel may see selling pressures after reporting below par quarterly earnings,” it said.
Friday, 25 November 2011
Kinsteel posts lower Q3 pre-tax loss
Kinsteel Bhd reported a smaller pre-tax loss of RM25.76 million for the third quarter ended Sept 30, 2011 compared with a pre-tax loss of RM49.29 million registered in the same quarter last year. Revenue increased to RM403.77 million from RM360.07 million raked in the same quarter last year, Kinsteel said in filing to Bursa Malaysia.
The group is optimistic its concentration and pelletising plant would
significantly reduce production cost and enable it to position itself more
competitively, going forward. -- Bernama
The group is optimistic its concentration and pelletising plant would
significantly reduce production cost and enable it to position itself more
competitively, going forward. -- Bernama
Friday, 4 November 2011
OSK maintains 'neutral' call on steel stocks
OSK Research is cutting its fair value for steel firms across the board, citing their below average outlook amid the volatile market as a factor.
The steel stocks are currently offering limited price upside, the research house said, adding that it has placed a "neutral" call on most counters, except Perwaja Holdings Bhd and Kinsteel Bhd.
For Perwaja and Kinsteel, it has maintained its 10 per cent discounted cash flow valuation for the potential iron ore mine as well as "buy" and "trading buy" recommendations, respectively.
Although no official agreement has been signed to date, Menteri Besar of Terengganu was reported to be ready to consent to Perwaja’s application to mine ore in Bukit Besi.
OSK said the sluggishness in the economy also suggested that its earlier anticipated mergers and acquisitions in the sector might now take longer to materialise.
News that Lion Group is liquidating its steel assets has dragged on following a series of negative developments in the European Union and United States, it said.
"Although negotiations are ongoing and there are at least four interested buyers, we suspect the conclusion of such deal may be delayed as buyers may take up their time in bargaining for better pricing amid a weak economic backdrop," OSK said.
OSK also said that the possibility of the Lim family selling 10 - 15 per cent stake in Ann Joo is fading as the share price has fallen too far from the ideal price tag.
The research house is also generally bearish on steel demand, which may potentially be dampened by a weak economic outlook but believes that Asia’s steel market may hold up better than in other parts of the world.
On the local front, various government mega projects to be rolled out under the Economic Transformation Programme will boost the country’s steel requirements, particularly long steel products.
OSK also foresees the Mass Rail Transit (MRT) and the 100-storey Warisan Merdeka as the two projects that may substantially spur steel demand. -- Bernama
The steel stocks are currently offering limited price upside, the research house said, adding that it has placed a "neutral" call on most counters, except Perwaja Holdings Bhd and Kinsteel Bhd.
For Perwaja and Kinsteel, it has maintained its 10 per cent discounted cash flow valuation for the potential iron ore mine as well as "buy" and "trading buy" recommendations, respectively.
Although no official agreement has been signed to date, Menteri Besar of Terengganu was reported to be ready to consent to Perwaja’s application to mine ore in Bukit Besi.
OSK said the sluggishness in the economy also suggested that its earlier anticipated mergers and acquisitions in the sector might now take longer to materialise.
News that Lion Group is liquidating its steel assets has dragged on following a series of negative developments in the European Union and United States, it said.
"Although negotiations are ongoing and there are at least four interested buyers, we suspect the conclusion of such deal may be delayed as buyers may take up their time in bargaining for better pricing amid a weak economic backdrop," OSK said.
OSK also said that the possibility of the Lim family selling 10 - 15 per cent stake in Ann Joo is fading as the share price has fallen too far from the ideal price tag.
The research house is also generally bearish on steel demand, which may potentially be dampened by a weak economic outlook but believes that Asia’s steel market may hold up better than in other parts of the world.
On the local front, various government mega projects to be rolled out under the Economic Transformation Programme will boost the country’s steel requirements, particularly long steel products.
OSK also foresees the Mass Rail Transit (MRT) and the 100-storey Warisan Merdeka as the two projects that may substantially spur steel demand. -- Bernama
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