From the Edge for w/e 6/13/06

From the current issue of the Edge, we have a story about the positive outlook for the steel players. The steel players are divided into 2 groups i.e. the long-steel products players and the flat-steel products players. In the former group are players like Lion Industries (the owner of Amsteel Mills), Southern Steel, Malayawata, Masteel and Kinsteel. In the latter group are players like Lion Corp (the owner of Megasteel), Ornasteel and Mycron (formerly, Maruichi).

Due to better prices and demand in the past few months, the industry is expected to report better result for the quarter ending June 2006. Long-steel products' prices had increased by more than 10% since March to stabilize at about RM1600 per tonne while flat-steel products' prices had risen by 15% to RM2300 per tonne. So far, only one company has filed in its June quarterly result & that’s Malayawata. It managed to register a 104%-jump q-o-q in its turnover to RM376 mil while its net profit jumped to RM15.7 mil from a mere RM187k in the preceding quarter.

Some of the stocks highlighted are:

1. Masteel

InsiderAsia is positive on Masteel due to its lean balance sheet & above-average operating margins.

2. Southern Steel

Hwang-DBS is positive on Southern Steel as it will benefit the most from the 9MP being the largest long-steel products manufacturer. Also, it produces steel wire-rods which can command better prices as compared to other long-steel products as the selling prices of the latter products are capped by the Government.

3. Ornasteel

This is a favorite of many analysts including iCapital, whose “medium-term buy” call is predicated on greater contribution from the plant expansion, balance sheet strength and good dividend yield of 7%.