Tuesday, April 30, 2013

SSteel- a temporary bottom in place?

Result Update
SSteel returned to the black in QE31/3/2013, with a net profit of RM18.3 million on the back of a revenue of RM725 million. The improved performance was attributable to higher sales volume & better selling prices.


Table: SSteel's last 8 quarterly results


Chart 1: SSteel's last 28 quarterly results

Industrial outlook

SSteel, a major steel wire rod producer, is expected to benefit from the government's decision to impose anti-dumping duties against some exporters, particularly those from China. With the imposition of such duties, the selling prices of steel wire rod produced locally should improve. In addition, the price of iron ore, which had risen for the past few months, appears to have peaked in the past few weeks. These two favorable factors could see SSteel recording better results in the next few quarters.


Chart 2: Steel Wire Rod & Iron Ore price charts for past 5 years to March 2013 (Source: Indexmundi)

Valuation

SSteel (closed at RM1.38 yesterday) is now trading at a PE of 14 times (based on last 4 quarters' EPS of 10 sen). However, if we annualized SSteel's earning based on its latest result, then its future EPS could be 17.6 sen and its future PE would be 7.8 times. It is currently trading at a Price to Book of 0.67 times (based on its NTA of RM2.07 as at 31/3/2013). Based on these PE & PB multiples, SSteel is deemed fairly attractive.

Technical Outlook

SSteel has been in a downtrend for the past 3 years. It may have formed a base at RM1.30-1.35 level. If the earning for the stock continues to improve, the share price should rebound to test the downtrend line (S1-S1) at RM1.65-1.70.


Chart 3: SSteel's daily chart as at April 29, 2013 (Source: quickcharts)

Conclusion

Based on improving financial performance & relatively attractive valuation,SSteel could be a good stock for long-term investment. However, its technical outlook has not turned positive- albeit a temporary base formed at RM1.30-1.35- and buying, if any, should be gradual.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, SSteel.

3 comments:

Ray Khor said...

Hi Alex,

Would appreciate your view on Farlim and MYEG please. I noticed a volume increase for FARLIM recently. Thanks.

Ray

Anonymous said...

hi Alex-I note that you have not touch on Lion Ind inspite of william cheng offering Rm140 per share.What say you re lion Ind?Thinking of going in at current level.comment please.thanks

Alex Lu said...

Hi charles leong

I did not comment on Lion Ind due to the outstanding offer to buyout the company from its major shareholder, William Cheng. Who knows whether he would raise his price or not.

The support for this stock is at RM0.90 & resistance at RM1.15. If I am holding onto Lion Ind, I would accept the offer & use the proceed to buy Annjoo. Between Annjoo & Lion Ind, I prefer Annjoo.