Steel Sector


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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Malaysia already one of the world’s stronger performers so far in 2011. OSK believe the good run will continue in July and hence advocate the sectors linked to the ETP, namely Banks, Construction, Property and O&G, as investment ideas for the month.

OSK also continue to see the local market climb towards year-end target of 1680 pts, although the 1600-pt psychological resistance might be difficult to break before Budget 2012 which to be unveiled on 7 Oct.

For July, OSK top picks are from Banking, Construction, Property, Oil & Gas and Steel
sector.

The table below are the target price for OSK’s July 2011 top picks.

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Japan hits by worst earthquake in over 100 years. The cost of reconstruction is estimated at USD161bn. The impact on Malaysia is generally limited given that Japan’s major ports and industrial areas have been spared. However, there would still be winners and losers among some sectors. For now, OSK maintain Buy into Weakness call on the Malaysian market with year-end target for KLCI of 1680 pts remain intact.

The Winners

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