[转贴]Standard and Poor recommend BUY on MASTEEL

Stock Code: 5098
Bloomberg: MSW MK
Price: MYR0.85
12-Month Target Price: MYR1.10
Date: September 1, 2010

Board: MainSector: Industrial Products
GICS: Materials/Steel
Market Value - Total: MYR179.2 mln

Summary: Malaysia Steel Works (KL) (Masteel) is a steelproducer with a capacity of 800,000 tons per annum (tpa). Itproduces steel billets and bars that are sold to downstreamsteel companies for the manufacturing of bars and other longproducts for the construction sector. The stock is acomponent of FBM EMAS.

Analyst: Su Peng Ng

Results Review & Earnings Outlook•
Masteel’s 1H10 results were within our expectations, after net profit ofMYR14.4 mln accounted for 48% of our 2010 estimate.

1H10 revenue rose 43% YoY, helped by higher sales volume andaverage selling price (ASP). With the recovery in global growth,Masteel booked in an operating profit (MYR21.3 mln) vs. an operatingloss in 1H09 (- MYR25.1 mln).

Improved sales volume (+15% QoQ) was the main factor for the 2Q10revenue growth of 23% QoQ. Margins, however, were slightly affected(4.9% vs. 5.1%), given the contraction of the market from mid-Mayonwards, which hurt ASP and margins.

While we expect a more subdued 2H10 due to the fasting month andmonsoon season, the lower average raw material price may helpoffset potentially lower volume. Masteel had stocked up on its rawmaterial requirements at a low price in June/July 2010, while 3Q10ASP has picked up slightly (+5% QoQ) thus far。

We maintain our 2010-2011 earnings estimates.


Recommendation & Investment Risks
We maintain our Buy recommendation on Masteel, with an unchanged12-month target price of MYR1.10.

Although our target price warrantsa more aggressive recommendation, we believe the rising risk ofslower global economic growth and the potential dilution from its upcomingwarrant issue may limit share price gains in the near term.
Our target price remains derived using a blend of PER and P/Bmethodology. We utilize a PER of 6x and P/B of 0.5x (both unchanged)against our estimated 2011 EPS and BVPS respectively. The multiplesare in line with peer valuations.

In May 2010, Masteel proposed an issue of 1 warrant for every 2shares held to raise MYR21.4 mln to fund working capital. The group ispreserving its gearing levels in anticipation of its new MYR300-mlndownstream project that is expected to come in by 2012. The potentialdilution from these warrants on the group’s FY11 EPS is a significant28%.

Risks to our recommendation and target price include lower steelprices, higher-than-expected raw material prices and lower-thanexpecteddemand.

http://www.klse.com.my/website/bm/listed_companies/cmdf_bursa_research_scheme/eResearch.jsp