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PrintCSC Steel Holdings Bhd (CSC Steel) is seeing sluggish performance due to poor demand, struggling economy and a persistently unfavourable spread between hot and cold rolled coils.
According to a research report by OSK Research Sdn Bhd (OSK Research), CSC Steel returned to the black in first quarter financial year 2012 (1QFY12) with net profit of RM5.6 million. Nevertheless, these numbers indicated a very weak start as they were well below the research firm's and consensus estimates.
The weak results could be attributed to the continuing sluggishness seen in steel demand. The research firm had earlier anticipated a short term spike in steel prices but it turned out that the momentum was not that impressive.
A quick look at the international hot rolled coils (HRC) and cold rolled coils (CRC) prices showed that the margin between CRC-HRC remained slim, and thus continued to erode CSC Steel's bottom-line.
The research firm believed that CSC Steel would still face challenges in the near term, at least in the upcoming 2QFY12, as market sentiments remain weak.
Domestically, the company was experiencing inconsistent raw materials supply while globally, the slowdown in China's economic growth and the protracted European debt crisis were likely to adversely affect buying sentiment.
Overall, the research firm was cautious on CSC Steel's performance, which lowered the firm's earning forecast. However OSK Research also noted that despite the hurdles to earnings, CSC Steel possess a large cash pile of RM224.4 million on its balance sheet, which would allow it to honour its dividend payout mandate of 50 per cent.
The firm pegged a fair value of RM1.33 per share for CSC Steel based on a 0.64 times FY12 book value.
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