CSCStel: Profit Plunged Due To Weaker MYR & Higher Input Costs

Results Update

CSCStel's net profit dropped by 74% q-o-q or 78% y-o-y to RM6.2 million on the back of higher revenue -which rose 11% q-o-q or 18% y-o-y to RM287 million. The increase in revenue is due to significant increase in the sales volume albeit at marginally lower selling prices of all steel products. Profit before tax dropped from RM24.8 million to RM7.9 million due mainly to substantially higher cost of production due to higher raw materials cost exacerbated by rapidly weakening Ringgit vis-à-vis US Dollar during the quarter under review.


Table: CSCStel's last 8 quarterly results


Graph: CSCStel's P&L for last 37 quarterly results

Valuation

CSCStel (closed at RM2.11 yesterday) has a PER of 11.3 times (based the last 4 quarters' EPS of 18.63 sen). At this PER multiple, CSCStel is deemed fully valued.

Technical Outlook

CSCStel is now testing the line connecting its recent trough at RM2.00. This support is fairly strong support. If the support is violated, the next support is at RM1.90.


Chart 1: CSCStel's daily chart as at Feb 13, 2017 (Source: MalaysiaStock.Biz)


Chart 2: CSCStel's weekly chart as at Feb 13, 2017 (Source: MalaysiaStock.Biz)

Conclusion

Despite on the weaker financial performance and full valuation, I am revising my rating for CSCStel from a TAKE PROFIT to a HOLD as I expect the technical support at RM1.90-2.00 to hold up the stock.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.