HLG: 29 May 2008 Kinsteel - Q108 beat forecast on ASP hikes
Kinsteel Bhd HOLD
Price target RM1.70
Share price at 28 May RM1.62
Investment summary
Q108 net profit of RM62m was 6-12% ahead of forecasts/consensus. We have turned positive on Kinsteel, as we think strong ASP hikes cancel out risk from a near-term gas price hike. However, Kinsteel’s heavy gearing makes EV/EBITDA valuations look rich (8x adjusted for Perwaja minorities, vs. sector cycle peak valuations of 6x). We are positive on Malaysia’s steel sector due to: (1) a rebound in domestic demand from the construction sector; (2) Chinese steel export curbs, which creates a benign pricing environment for Malaysian producers.
Buy on dips
We have turned positive on Kinsteel, and now think the strength of the steel up-cycle outweighs risks from higher coal and iron ore prices. There could be arbitrage opportunities from the Perwaja IPO (1:4 Perwaja offer for Kinsteel minorities).
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Saturday, 21 June 2008
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