Masteel's net profit peaked

Masteel has announced its results for 3Q2008 ended 30/9/2008. Its net profit increased by 46.9% y-o-y to RM16.7 million on the back of a 71.5%-increase in turnover to RM264 million. When compared to the immediate preceding quarter, net profit was 55.9% lower while turnover has declined 5.9%.



In the note to its account, Masteel stated that "(t)here are indications of the bottoming out of the steel prices in late October and the prices have begun to rebound". From Mysteel.net, I have extracted the charts of 2 steel products, i.e. CR Sheet & Rebar which indicate that the prices of these products are finding some support.



Masteel (closed at RM0.69) is now trading at a trailing PE of 1.5 times (based on its last 4 quarters EPS totaling 47 sen) or at a Price to Book of 0.3 times (based on NTA of RM2.18 per share as at 30/9/2008). While many analysts expect Masteel's earning to drop sharply in line to the drop in the prices of steel products, it is likely that Masteel's relatively smaller operation- with lower overhead- will enable it to better withstand this challenging times.

From the daily chart (Chart 1), we can see Masteel is now testing its downtrend line resistance at RM0.70. The immediate horizontal support is at RM0.65. A break of this support level could see the stock testing its strong horizontal support at RM0.55 (see the week chart, Chart 2).


Chart 1: Masteel's daily chart as at Nov 25, 2008 (source: Quickcharts)


Chart 2: Masteel's weekly chart as at Nov 25, 2008 (source: Quickcharts)

While it is too early to expect Masteel's share price to trend higher, the current price is very attractive. If the indication of a bottom in steel prices proves to be accurate, then we should be able to see a recovery in Masteel's net profit & turnover in the next quarter. Masteel is a stock worth tracking for a recovery play.