CSC Steel Holdings Bhd
(Jan 15, RM1.06)
Downgrade to hold with a target price (TP) of RM1.17: We downgrade our call on CSC Steel Holdings Bhd to a “hold” with a TP of RM1.17 using a 0.5 times financial year ending Dec 31, 2020 price-to-book value ratio. Investment merits include zero gearing position and dividend policy of distributing at least 50% of earnings. Downside risks include continued competition from cheap imports and volatile raw material prices.

Beginning Dec 25, 2019, Malaysia has imposed anti-dumping duties of between 3.84% and 26.39% on cold-rolled coils imports from China, Japan, South Korea and Vietnam. The anti-dumping duty measures will be effective for five years until Dec 24, 2024.

This looks to address the effects of unfair trade practices that have devastated the local steel industry, but this may not curb the influx of imports entirely. Exploitation and abuse of loopholes on import duty exemptions are still present.

Barring any new supply disruptions, we may see iron ore prices retrace some of their gains as Brazil and Australia iron ore production recovers. Last year we saw iron ore prices rallying to as high as US$123.19 a tonne due to the Brazil Vale dam incident and bad weather affecting exports from Australia, disrupting global supply.

Caution remains in the trade environment as the steel industry faces stiff competition from foreign players and high levels of uncertainty attributed to many unresolved geopolitical issues plaguing the markets and dampening economic growth. CSC’s focus is on higher margin products to drive earnings and more competitive pricing to capture market share. No heavy capital expenditure is in the pipeline. — Inter-Pacific Research, Jan 15