Period 3Q12/9M12
Actual vs. Expectations
The 3Q12 results came in below ours and the consensus
expectations.
The 9M12 net profit
of RM21.2m came in at 68% and 60% of ours and the consensus’ FY12 full year forecasts
respectively.
Dividends No
dividend was declared.
Key Result Highlights
The 9M12 net earnings dropped by 44% to
RM21.2m on the back of a 9% increase in revenue. This was due to an effective
higher operating cost during the year and partly due to a higher inventory cost
recorded in early 2012. The pre-tax margin for the period halved from last
year’s 4%.
QoQ, the 3Q12 net
profit came down by 63% due to an increase in the production cost, which outpaced
the average selling price. This was further due to the softening market during
the Ramadan period.
Outlook We
expect next year will be a busy year for steel players, especially for Masteel.
The demand for its steel billets and long products is expected to increase in
tandem with the busier construction activities in 2013. However, we do not
expect an increase in selling price as the global oversupply issue is still
persistent.
Change to Forecasts We have trimmed down our FY12-13E by 10% and 21%
as we had reduced our average selling price lower and tuned up our FY13
production cost higher.
Rating Downgrade to MARKET PERFORM We have
downgraded Masteel from an OUTERFORM to a MARKET PERFORM due to its limited
capital upside (3%) to our revised Target Price.
Valuation We have reduced our Target Price from RM1.08
to RM0.90 due to our adjusted lower FY13E earnings above.
Risks Volatile scrap prices and a subdued average
selling price due to the global economic uncertainties.
A lower plant
utilisation in FY13.
Source: Kenanga
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