Stripping off a one-off non-recurring loss, Kinsteel posted a core loss of RM8.3m in 3Q, shrinking its 9MFY12 net profit to merely RM2.2m, which is below our and street estimates. As expected, its downstream steel op weakened in 3Q as steel and material prices dropped again, resulting in a negative time lag. Performance of 37%-owned Perwaja was also hit by the same factors. In addition, prolonged stoppage at its Gurun plant has also resulted in uncovered overhead costs. Inview of the poor results and delays in it upstream makeover, we are trimming our projections for the next two years. That said, we maintain our NEUTRAL call and FV of RM0.41.
Below expectation. Excluding the one-off impairment in loss of receivables by its 37%-owned Perwaja in 3Q and termination benefitamounting to RM9m paid to employees of its 51%-owned Perfect Channel SB (PCSB) recorded in 2Q, the group posted a core net profit of RM2.2m in 9MFY12 (3Q: core loss of RM8.3m). The result was below our and way short of street estimates. Operationally, other than the operational loss in its 37%-owned Perwaja, PCSB also incurred uncovered overhead cost following its decision to stop operations at its Gurun plant. That aside, Kinsteel also faced lacklustre sales on the back of weak demand as buyers prefer to hold back purchases pending clearer market direction.
Slow progress in upstream makeover? The deceleration in steel prices makes us cautious on steel counters, including Kinsteel. Although we are keeping high hopes on Perwaja’s upstream makeover to eventually improve the group’s earnings stream, progress has been rather slow. We understand from our source that the initial mining work has been carried out but full-scale production still requires final approval from the state Government. In addition, the earlier-than-expected monsoon had resulted in heavy rainfall, stalling its mine production. We understand that construction of its concentration plant had likewise been slowed by the raining season and thus its commissioning date had been deferred to early-March 2013.
Maintain NEUTRAL. We are not pinning too much hope on Kinsteel’s rolling business, especially since the implementation of mega projects under Economic Transformation Programme (ETP) is only expected to pick up after the next General Election. With the earnings downgrade in Perwaja, we are trimming its downstream rolling margin, translating to 47.1%/12% reduction in our FY12/FY13 estimates. Meanwhile, we are keeping our NEUTRAL call, with our FV maintained at RM0.41, based on a 0.6x FY13 BV, or -1.5 standard deviation of its historical trading range, premised on our newly revised estimates.
Below expectation. Excluding the one-off impairment in loss of receivables by its 37%-owned Perwaja in 3Q and termination benefitamounting to RM9m paid to employees of its 51%-owned Perfect Channel SB (PCSB) recorded in 2Q, the group posted a core net profit of RM2.2m in 9MFY12 (3Q: core loss of RM8.3m). The result was below our and way short of street estimates. Operationally, other than the operational loss in its 37%-owned Perwaja, PCSB also incurred uncovered overhead cost following its decision to stop operations at its Gurun plant. That aside, Kinsteel also faced lacklustre sales on the back of weak demand as buyers prefer to hold back purchases pending clearer market direction.
Slow progress in upstream makeover? The deceleration in steel prices makes us cautious on steel counters, including Kinsteel. Although we are keeping high hopes on Perwaja’s upstream makeover to eventually improve the group’s earnings stream, progress has been rather slow. We understand from our source that the initial mining work has been carried out but full-scale production still requires final approval from the state Government. In addition, the earlier-than-expected monsoon had resulted in heavy rainfall, stalling its mine production. We understand that construction of its concentration plant had likewise been slowed by the raining season and thus its commissioning date had been deferred to early-March 2013.
Maintain NEUTRAL. We are not pinning too much hope on Kinsteel’s rolling business, especially since the implementation of mega projects under Economic Transformation Programme (ETP) is only expected to pick up after the next General Election. With the earnings downgrade in Perwaja, we are trimming its downstream rolling margin, translating to 47.1%/12% reduction in our FY12/FY13 estimates. Meanwhile, we are keeping our NEUTRAL call, with our FV maintained at RM0.41, based on a 0.6x FY13 BV, or -1.5 standard deviation of its historical trading range, premised on our newly revised estimates.
Source: OSK
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