CSC Steel Holdings Bhd
(May 11, RM1.03)
Maintain hold with lower target price (TP) of 95 sen: CSC Steel Holdings Bhd’s first quarter of financial year 2015 (1QFY15) net profit of RM5.4 million came in below our expectation, accounting for 20.7% of our full-year forecast.

The deviation on the finance income was lower than expected with no dividend declared.

Based on quarter-on-quarter, 1QFY15 net profit continued to improve by 38.5% to RM5.4 million, thanks to significantly higher sales volume and selling prices, coupled with no losses from its associate. As for year-on-year, 1QFY15 performance turnaround showed a net profit of RM5.4 million (from a net loss of RM400,000 in the previous year) due to higher sales volume and selling prices, which have in turn resulted in earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin expanding to 5.1% from 2.9% a year ago.

Net cash dwindled from RM210.4 million to RM199.7 million.

Despite recording an improvement from a net loss to a net profit, we remained cautious as the outlook for steel in FY15 remains bleak.

Looking ahead, management remains cautious about its near-term outlook, given stiff competition arising from the influx of imported steel products from China, which will likely worsen, and weaker ringgit which will further weaken CSC’s profitability.

We forecast net profit for FY15 to FY16 will be trimmed by 12.1% to 13.5% largely to account for lower finance income assumptions. — Hong Leong Investment Bank Bhd, May 11

This article first appeared in The Edge Financial Daily, on May 12, 2015.