CSC Steel to gain from rising steel prices
Ng Wai Mun 
The company’s share price fell despite higher prices for steel-related products

The recent proposal by US President Donald Trump to raise tariff rates of steel imports by as much as 25% and 10% for aluminium, has driven share prices of local steel companies further down. However, analysts do not expect the proposed tariff hike to have a major impact on domestic steel players, as the bulk of their sales revenue is domestic-driven.

CSC Steel Holdings Bhd, whose share price has been falling since January last year, shed six sen on March 5 to close at RM1.40. This has caught the attention of market observers who see the counter as a bargain.

Analysts point out that steel price has risen recently and this could benefit CSC. UOB Kay Hian Research analyst Abdul Hadi Manaf notes that steel bar price grew at a slower 4.4% month-on-month in January to RM2,750 per tonne, from 8.1% in December. Despite the slower growth, he stresses the January price was a five-year high. He projects this year’s average price to be RM2,400 per tonne.

Like its peers, CSC benefited from the bullish steel prices by posting a pre-tax profit of RM19.3 mil in Q4 ended Dec 31, on better revenue of RM367.2 mil, which was up RM80.3 mil or 28% from the previous corresponding quarter.

The company attributed the better performance to a significant increase in selling prices of its steel products which also recorded marginally higher sales.


Outlook still good

Analysts are positive on CSC given rising steel prices. Last October, the World Steel Association forecasted global steel demand to hit 1.622 billion tonnes. It believes this year’s demand will increase to 1.648 billion tonnes, ensuring price remains high.

The price of cold-rolled steel coils generally lags behind hot-rolled coils (HRC). “As the market expects HRC price to ease marginally in 2018, the price of cold-rolled steel coils should surge, benefiting CSC,” says a research manager, highlighting that CSC basically manufactures cold-rolled steel products.

“Steel companies will continue to benefit. The focus at this point is on CSC because the positive outlook for steel price has already more than priced in for some steel companies with (price) appreciation of over 100%.”


Overweight sector

UOB Kay Hian Research has placed an overweight call on the sector as it will continue to deliver exciting earnings.

AmInvestment Bank Research upgraded CSC from hold to buy recommendation as it believes “value has emerged after the steep fall in its share price in recent months”.

In its February report on CSC, the research house placed a fair value of RM1.83 on the stock. Given its good dividends of 14 sen and 10 sen in FY16 and FY17 respectively, the current share price gives a potential yield of 6-9%.

This article first appeared in Focus Malaysia Issue 275.