CSCSTEL: An Attractive Steel Stock

CSCStel share price has dropped 43% from an intraday of RM2.08 in January 2017 to its current price of RM1.19. Is this steel stock worth buying?

Results Update

For QE30/6/2018, CSCStel's net profit dropped 2% q-o-q or 28% y-o-y to RM10 million while revenue was mixed - down 1.5% q-o-q or up 6.9% y-o-y to RM343 million. The Group’s revenue dropped slightly q-o-q mainly due to overall decrease in sale volume despite marginal increase in prices of all steel products. In spite of the lower sale volume, the Group’s profit before tax of RM13.5 million this quarter is marginally lower than that achieved in the previous quarter due to marginal increase in overall production cost. [Note: CSCTEL's result for QE30/6/2018 was announced on August 17.]


Table: CSCStel's last 8 quarterly results


Graph: CSCStel's P&L for last 43 quarterly results

Financial Position

As at 30/6/2018, CSCStel's financial position is deemed very healthy with current ratio at 8.8 times and gearing ratio at 0.11 time. It has net cash of RM194 million which is equivalent to RM0.53 per share.

Interestingly, CSCStel announced in May this year that its wholly-owned subsidiary, Group Steel Corporation (M) Sdn Bhd ('GSCM') has proposed to undertake a capital reduction and repayment to cancel RM139 million of its share capital and to distribute the credit amount back to CSCStel (here). The shareholders will be very interested to know what CSCStel will do with this cash balance once it has received it from GSCM. Will it be reinvested in a new project that will generate additional earning or will it be distributed partially to its shareholders?

Current Year Prospect

The company expects “the steel market to face micro price fluctuation till the year end due to trade measure issues and price factor in iron ore and coking coal. On the domestic steel market, (the company is) facing threat from the influx of low priced steel imports. The Ministry of International Trade and Industry has been made aware of the situation and is now taking appropriate actions including initiating anti-dumping investigation on imports of galvanised steel from China and Vietnam to minimize the harm to the local manufacturers.”

The company is not very inspiring when it states that it's “cautiously optimistic to achieve profitability for the rest of the year.”

Valuation

CSCStel (closed at RM1.19 yesterday) has a PER of 8.8 times (based the last 4 quarters' EPS of 13.5  sen). If the cash balance of RM0.53 per share is deducted from the share price, CSCStel's PER will be reduced to 4.9 times. At this PER multiple, CSCStel is deemed very attractive. In addition, CSCstel has an attractive dividend yield of 8.4% based on current price of RM1.19.

Technical Outlook

CSCStel peaked at RM2.08 in January 2017, and declined steadily in a downward channel.


Chart 1: CSCStel's daily chart as at Sep 6, 2018 (Source: MalaysiaStock.Biz)

If you look at the monthly chart, CSCtel price decline may bring the share price to its long-term uptrend line support at RM0.90-1.00.


Chart 2: CSCStel's monthly chart as at Sep 6, 2018 (Source: MalaysiaStock.Biz)

Conclusion

Based on satisfactory financial performance, strong financial position and attractive valuation, CSCStel is a good stock for long-term investment.

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.