LionInd


Steel

While the prices of various steel products have risen 5% to 10% to date,
OSK is not overly excited since this relatively small increase took place during a seasonal peak period.

Furthermore, iron ore and scrap metal prices bounced backed strongly almost immediately after the abrupt plunge in Oct 2011 and continued to stay at relatively high levels.

Although scrap metal and iron ore fine prices averaging USD450 and USD140 a tonne respectively in 2012, OSK stills expect steel prices to face downward pressure as steelmaking operations continuing to experience meager margins in the medium term.

Below are the target price/fair value and rating for selected stocks in steel sector.

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Steel

With M&As in the Malaysian steel sector reaching a feverish pitch and a few parcels of iron ore mining concessions potentially coming up for grabs soon, OSK is warming up to this sector, which has long been left out in the cold.

OSK has Trading BUY calls on Lion Industries, Ann Joo and Perwaja, and also upgrade Kinsteel to a NEUTRAL as these 4 companies are potential winners from these fresh theme plays. However, OSK maintain our NEUTRAL rating on Southern Steel and Malaysia Steel Works (Masteel).

Below are the target price/fair value and rating for selected stocks in steel sector.

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Every beginning of a new year, The Edge Malaysia, make a recommendation on the counters to Watch for that year.

Similar to year 2010, they recommend 10 counters to look for based on its fundamental and share price valuation. The selection also taking into account the stocks liquidity and long terms return.

The Edge stock picks for 2011 are

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steel

Not Hot Enough. Recent news of steel prices and demand recovering globally prompt us to make a review on our sector rating. Our fundamental review tells us that the outlook for 4Q has improved as selling prices are recovering and there is potential restocking towards year-end, but the upside is limited. Although there is no earnings revision as the overall impact is well within our estimates, we are turning a bit positive by raising our PER multiple one notch up but continue to keep our P/NTA valuation at +1 standard deviation of the historical band. As this marginal fair value increase offers limited upside, we maintain NEUTRAL.

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steel

The murky outlook in the next two quarters also suggests that investors should avoid cyclical steel stocks. However, as the recent selldown may have fully priced in the negative developments, we are mostly NEUTRAL on the sector and companies under our universe except Lion Industries, on which we have a Trading BUY.

If you are going to invest in Stell Stocks now, remember the following

  • Average selling prices (ASP) of steel products are diving after peaking in April 2010.
  • Energy subsidy cut just around the corner.

Taking the above factor into consideration, below are the target price for steel sector.

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