Southern Steel Bhd ('SSteel') is involved the steel sector, producing mild steel round bars, high-yield deformed bars, light section and wire rods ranging from very low carbon to high carbon and cold heading steel.
Recent Financial Results
SSteel has just announced its results for 1Q2008, where its net profit increased by 39.3% q-o-q or 617% y-o-y to RM96.4 million. Turnover increased by 21.7% q-o-q or 49.8% y-o-y to RM838 million. The improved performance is attributable to higher volume & higher selling prices.
Valuation
With the big increase in net profit, SSteel share price gained 13 sen to close at RM2.50 in the morning session. SSteel is now trading at a PE of 4.0 times (based on its past 4 quarters' EPS totaling 63 sen) or at a P/Book of 1.26 times (based on NTA per share of RM1.98 as at 31/3/2008). At these multiples, SSteel is deemed very attractive.
Technical Outlook
From the weekly chart (Chart 1), we can see that SSteel is in a steady uptrend. SSteel's immediate horizontal resistance is at RM2.60, which was its high recorded on January 29th. The stock is currently holding at the RM2.50 level, which could be its new horizontal support. From the monthly chart (Chart 2), we can see that RM2.50 has acted as a strong resistance for the past seven years. The only occasion that the stock had surpassed this RM2.50 level was in January & February this year, but that upleg could not sustain due to the market selldown. If the share price can maintain at the RM2.50 level & subsequently surpass the RM2.60, the stock would test its long-term downtrend line at RM2.80. If it can cross all these hurdles, the stock has a chance to shoot at the RM4.00 resistance level.
Chart 1: SSteel's weekly chart as at May 5, 2008 (courtesy of Quickcharts)
Chart 2: SSteel's monthly chart as at May 5, 2008 (courtesy of Quickcharts)
Conclusion
Based on attractive valuation, I believe SSteel is a good BUY for the medium-term.
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