Tuesday, April 30, 2013

Steel stocks- poised for recovery

In addition to SSteel, I believe that we can consider other steel stocks for medium to long-term investment due to the improvement in the industrial outlook. I have tabulated a few steel stocks for consideration.

Table: Steel stocks' valuation

I have highlighted the stocks with dividend yield ('DY') exceeding 5%; PE below 10 times; and PB below 1 time. All the stocks are trading at PB below 1 time. Three stocks have DY exceeding 5% (Annjoo, CSCStel & SSteel). Out of the 3 profitable steel producers (Masteel, SSteel 7 CSCStel), only one stock is trading at PE below 10 times (that's Masteel). Masteel & CSCStel remained profitable in FY2012 as they have small exposure to the steel wire rod sector that was badly affected by dumping activities. As such, they will not benefit as much as from the anti-dumping move by the government as the other steel stocks.

Chart 1: Perwaja's wdaily chart as at April 29, 2013 (Source: quickcharts)

Chart 2: Kinstel's daily chart as at April 29, 2013 (Source: quickcharts)

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

Chart 4: CSCStel's daily chart as at April 29, 2013 (Source: quickcharts)

Chart 5: Annjoo's daily chart as at April 29, 2013 (Source: quickcharts)

To ride on the recovery of the steel stocks, we need to position in stocks that had been deeply oversold, such as Annjoo and Masteel. Masteel is trading at a low PE because investors are not avoiding the stock due to its venture into a monorail project in Johor Bahru. This new venture entails different kind of risk and investors are worried that the company might fail in that venture.

Annjoo is a strong steel company, which had done very well when steel product cycle recovers.It is forming a base at RM1.20 - albeit trading below that level in the past few days. Is this a breakdown? Can it recover above the RM1.20 mark again? If it can stay above RM1.20 mark, Annjoo could be a good stock to get into for the recovery play in steel iron rod & related steel-based building material.

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, Annjoo, Kinstel, Perwaja, SSteel, Masteel & CSCStel.


Wong said...

How about Melewar Industrial Group Berhad and MICRON?
Are they attractive?

Unknown said...

For me, i would choose CSCSTEL or MASTEEL compare with Annjoo. CSCSTEL has very good net cash and pay good Div while MASTEEL is trading at low PE. Cannot be denied that Annjoo is also good but just not so attractive if compare whith CSCSTEL n MASTEEL.

luminaire10 said...

Hi Alex,

Could you please share about Eversendai?


Alex Lu said...

Hi luminaire10

Eversendai rose from RM1.09 to a high of RM1.44 from late March to mid-April. It gave back all the gain. It even dropped below the RM1.09 support. That is a bad sign.

I have seen its accounts and it looks good. I don't know why this stock is dropping some much.

Alex Lu said...

Hi tan zi xuen

CSCSTEL or MASTEEL are good choices as they are profitable. However, Masteel is venturing into a new business- building monorail in Johor Bahru. That entails a lot of execution risk and it may depress the stock for a while.

CACStel has not dropped much and it may not give as high a return as the other steel stocks.

Alex Lu said...

Hi Wong

Melewar Industrial Group Berhad and MICRON's charts are about the same as Annjoo. Their support level are at RM0.22 for Melewar & RM0.25 for Mycron.