Featured Report: OSK On Perwaja II

Posted last night: A Quick Look At Perwaja Holdings Quarterly Earnings

As mentioned in the posting, Perwaja Holdings lost much more earnings.

Year-to-date losses now stands at a whopping 141 million.

Now guess what's OSK recommendation on a company that lost so much money!

It's a buy... and not only it's a buy .... the buy target had been increased!!!!

Shocked?!

Some might argue that perhaps there is some justification in OSK's reasoning because as argued Perwaja should be boosted by increase in selling prices...

• While stunned with Perwaja’s 2Q net loss that was 50.4% deeper q-o-q, we think the counter may stay under the spotlight being the direct beneficially of various stimulus packages. The 48.3% cut in iron ore pellets price in converse to higher scrap prices that benchmark Direct Reduced Iron (DRI) selling prices, as well as an increase of billets prices prompt us to revise up our FY10 earning by 15.7%. Therefore, our 12-month target price is raised to RM2.06 from RM1.78 derived from 8x FY10 EPS. We reiterate our Trading BUY recommendation.

But.... on the other hand.... some would be deeply puzzled and quick to point out that OSK themselves are 'stunned' by the relative poor earnings performance from Perwaja!

Some would also argue that if one judges Perwaja based on earnings performance this company had been doing really poor since listing.

Here's a simple screen shot.

And here is how Perwaja doing since listing.



And if one takes the stock performance of Perwaja into consideration..

One would have clearly realised that the stock plunged to as low as 59 sen in April 2009 and the price now is 1.59!!! Now despite the increase in selling prices, given the relatively poor earnings performance + the fact the stock had already flew to the moon (from 59 sen to 1.59), what is the justification to buy now?

Buy and hope that the stock can fly some more to 2.06?????

I guess some might be thinking that perhaps it is mad money time in Malaysia!!! lol

Strange also.. the head of OSK research says the general market is "Market ripe for retracement" on the Edge Financial Daily, the other day.

• Markets overvalued, ripe for a retracement
  Even as OSK anticipates a better set of results, it maintains the view that the market has run ahead of fundamentals.
  
  In fact, across East Asia, markets had rallied to the levels last seen in late 2006 and early 2007. Given that markets are essentially valuing the economy some 12 months forward, it would appear that investors were expecting 2010 to be equivalent to 2007, which will definitely not be the case.
  
  As such, OSK believed that markets were significantly overvalued and ripe for a retracement.

Rather ironic yes?

The head of the research, who signs all daily reports, said publicly that the market has run ahead of its fundamentals. However, the researchers under him, issues out upgrades and buy calls left, right and center. Feeding the fire eh? Isn't this why the market has run way ahead of its fundamentals?

How?

Last but not least... check this out... this is how OSK increases their Target Prices!

On May 19th 2009, OSK wrote this.. (see screen shot.. Perwaja's TP was a mere 1.11 on that day! No joke! see this screen shot )

On May 27th, despite the relative shocking poor result posted by Perwaja in May 2009, OSK sneak in a buy upgrade in their steel sector report! LOL! No joke man!

• Considering that Perwaja is currently trading above our original target price, we have decided to factor in the potential earnings enhancement to our new fair value of RM1.67 and upgrade our recommendation to TRADING BUY.

( LOL! That was a nice reason to upgrade to rm1.67, eh? )

Now on July 24th, OSK did another Long steel report and they sneak in yet another price increase for Perwaja Holdings to 1.78!

Just like that.. Perwaja Holdings target price went from 1.11 to 1.78 and today OSK gave it another price increase (I wonder perhaps they are scared that 'tak cukup'! lol) to 2.06.

Which means from 19th May 2009 to 20th Aug 2009, Perwaja Holdings target price was increased from 1.11 to 2.06!

LMAO!

Nice target price upgrades or what?!

No wonder OSK is crying in the press that the market is ahead of its fundamentals and that the market is so ripe for a retracement!

So how now my dearest?

Like what you see?

Read more...

A Quick Look At Perwaja Holdings Quarterly Earnings

Posted on May 2009. OSK's Recommendation On Perwaja Holdings

Now what OSK wrote on Perwaja was so amazing. Let me reproduce the whole posting once more!

--------------------------------------
Was reading the following passage from OSK's Steel sector update today.

• Certainly more clarity for steel industry. Other than the positive financial impact for iron makers, we think the settlement of new benchmark prices represents an important milestone for the steel industry as it offers a clearer direction for steel prices a year ahead. The market has been volatile of late as there have been many rumours on the quantum of drop in iron ore and coking coal prices. The settlement will provide some degree of comfort to the industry players in committing their future orders. Although we prefer to take a prudent stance in our earnings estimates for Lion Industries’ HBI plant at Labuan and Perwaja’s DRI plant in Kemaman despite the latest development, our quick back-ofenvelop calculation reveals that every 10% additional reduction in iron ore pellet price may improve a company’s bottom-line for FY10 by approximately RM42m and RM63m respectively, with other key assumptions remaining constant. Considering that Perwaja is currently trading above our original target price, we have decided to factor in the potential earnings enhancement to our new fair value of RM1.67 and upgrade our recommendation to TRADING BUY...

Now on the 15th May 2009, OSK released a long report on the steel sector. On page 31, it had a SELL recommendation on it. It wrote the following.

Now on the 18th May, Perwaja announced it lost some 56.1 million.

OSK wrote the following.

• While Perwaja’s 1Q net loss of RM56.4m exceeded our full year net loss estimate of RM41.7m and consensus’ net profit of RM16.5m, this did not surprise us as we had already cautioned of potential losses for a quarter or two in our last sector update.

So.... the loss exceeded their full year loss estimate. ie. Perwaja did worse than expected! Some call it under performed. :p

But since Perwaja had already fallen to 1.11, OSK decided to upgrade it from SELL to Neutral and gave it a target price of 1.11.

So what do you reckon I was thinking when I read that passage from OSK today? Let me repeat again...

• Considering that Perwaja is currently trading above our original target price, we have decided to factor in the potential earnings enhancement to our new fair value of RM1.67 and upgrade our recommendation to TRADING BUY...

LOL!

And just like this... Perwaja's fair value has been upgraded to rm1.67!

Yeah.. it's a TRADING BUY!

ROFLMAO!

ps. here is a snapshot of Perwaja's latest balance sheet.

And here is a screenshot of Perwaja's stock chart.

How now my dearest Brown Cow?

Money for nothing and steel stocks for free?

LOL! :p2

-----------

ps.. do not forget I know nothing. :D

========================================

Perwaja reported its earnings tonight.

Guess what? Perwaja lost more money!

So how?

Yeah... many would be very quick to point out that Perwaja despite their losses and despite their weak balance sheet, Perwaja Holdings the stock, did surpassed OSK's fair value for the stock.

LOL!

Now that's what most want, yes?

Forget how lame the reasoning to buy the stock but most important is that as long as the stock hits the target price, the research house is good.

Hey... and if this is not a problem for them... should it be a problem for me?

:D

Read more...

Featured Report: Kenanga On Sino Hua-An

Posted last night: Update On Sino Hua-An

I chuckled when I see the market liking the 'losing-less-money' factor.

Who cares it is losing money? Most important it is losing less money! - lol.. does this even sound logical?

Yeah but then this is the stock markets and in the stock markets, the spin masters can make anything bad sound good. Am I right or perhaps am I flawed?

I do not know.

However, my mind is telling me to use another perspective.

Imagine this...

Picture this little girl telling her mum.

Little Girl: "Mummy, I failed my Maths but on the bright side, I got less wrong answers!"

Now do you think the Mummy should reward the little girl for getting less mistakes or should a fail be a fail?

I do not know about you but what I do know is that a fail is a fail. Which means a bloody red mark is stained on the report book!

So should one jump up for joy that a company is losing less money?

I wrote on Hua-An exactly a year ago, last August, Regarding Sino Hua-An. In that posting I was bemused and puzzled by the following issue.

• The earnings are decent no? But there is NO Growth and now earnings margins is under massive pressure.
  
  And would this be one reason why potential 'investors' or buyers would be worried about?
  
  And what about the company's product? IMHO this is also a huge concern because the past couple of months, metallurgical coke and its by-products have had one MASSIVE bull run. Prices had been extremely favourable and logical reasoning would suggest that this favourable coke prices would have boosted Huann's bottom line. But as we can see above earnings table, this coke bull run did not translate to better earnings for Huann. Would this be a concern since we have here a company whose key product is having one hell of a bull run but yet the company produces flat earnings. What does this say about the Quality of the company and the Business? Not very good yes? Do you reckon such reasoning is flawed?

It was a bull run for the metallurgical coke and its by products.

However the bull run never resulted into huge fortune for Hua-An.

And the local pros are suggesting to buy based on a recovery story? You know this makes me wonder because when times were so good last year, Hua-An earnings slumped. Now they want us to buy Sino Hua-An???

Sure boh? How Hua-An is at 0.545 sen. Who wants?

And then it so ironic.

Back exactly a year ago, I had a copy of KN Kenanga report on Sino Hua An. Price of Hua-An was also at 0.545!

Dejavu. :P

Now on the previous day back in August 2008, Hua-An reported earnings of 36.916 million and half year earnings was at 72.484 million!

And this is what Kenanga wrote in their report.

Despite calling it a BELOW expectations, Kenanga still gave it a BUY rating and a target price of 0.88 sen.

Remember Hua-An year-to-date earnings were 72.484 million.

Last night Hua-An's lost some 13.279 million and year-to-date losses were 36.911 million.

And Hua-An stock price is also 0.545. :p2

Despite losing money, Kenanga insist that the prospect is bright! (losing less money is good eh?)



Viola!

Kenanga still have a buy on Sino Hua-An but with a lower target price.

Yeah.. losing less money is good. :D

So who wants Hua-An?

Read more...

Update On Sino Hua-An

Blogged previously: Featured Report: RHB On Sino Hua-An

My other postings on Sino Hua-An

1. Update On Sino Hua-An
2. Massive Losses Posted by Sino Hua-An
3. Sino Hua An Q3 Earnings.
4. Still Who Wants Huann?
5. Who wants Sino Hua-An?
6. More On Sino Hua-Ann
7. Regarding Sino Hua-An

And then there were so many 'positive' news on Sino Hua-An: Upbeat outlook on Sino Hua-An's diversification

OSK boldly called Sino Hua-An the real China play in its latest report.

No joke!

Here's a screen shot.

Sino Hua-An announced its earnings tonight.

Want to guess how Sino performed?

Yup company still recorded losses!!!

Yeah, I know... the losses are less. lol! ... Expect more spin on the stock yo!

Read more...

Featured Report: OSK On Southern Steel

As most are aware, Southern Steel announced its earnings last night. (ps: I did blogged on Southern Steel before. See A Very Brief Look At A Leading Steel Stock: Southern Steel and A Quick Look At Southern Steel And The Steel Sector )

This morning, I glanced at the stock price. It's opening trade was 1.82.

I chuckled.

I do have a reason.

Back in 2007, I remember Southern Steel and a report from HwangDBS.

Southern Steel was also trading around 1.82.

Note the header 'Sterling 1Q2007'.

This would be link to that earnings note: Quarterly rpt on consolidated results for the financial period ended 31/3/2007

Now as you would know Southern Steel reported its earnings last night. It lost some 12.6 million.

And as most are aware OSK was very bullish on steel since March. lol.. you know it when the report is filled with colour pictures.

Ah... 2 years ago, SSteel was 1.82, making money. Now it is also 1.82 but losing less money. I wondered what OSK would say.

Oh... as expected. Buy maintained. Target 2.12. Yeah, Southern Steel lost less money. lol.

(ps: they had a Sell Into Strength market strategy highlighted on the Edge Financial Daily recently. )

And I like what they wrote. lol

• The rich market liquidity is also prompting investors to switch their attention to high beta steel stocks, which justifies our BUY recommendation. We value the company based on 6x FY10 EPS and 0.91x FY10 NTA/share, and derive a 12-month target price of RM2.12.

Rich market liquidity? lol

Err.. how come volume nowadays pale in comparison to what we saw back in March-June 2009?

And they are basing their TP on FY10EPS.

The above screen shot showed what SSteel did so far.

In for first half 2009, SSteel lost some 78.15 million.

And guess what's OSK estimate earnings for SSteel in fy 2009?

Would you believe 47.5 million???

lol.

Now why is that figure incredible? For SSteel to have reach anywhere close to 47.5 million for fy2009 earnings, SSteel has to make 47.5 + 78.15 or 125.6 million for its remaining 2 quarters for fy2009. lol. Setting an extremely high expectations, eh?

And guess what's OSK expectations for SSteel in fy 2010?

Just a mere 158 million!!!

Well, if that's possible, for sure SSteel is selling at an extremely cheap valuation based on these incredibly high earnings forecasts!

How babe?

Wanna buy SSteel?

---------------
lol... I decided to search for OSK previous write-up on SSteel and I found that they wrote on SSteel back in May 2009.



Incredible. Back then SSteel was at 1.63 and OSK gave it a buy rating with a TP of 1.93.

So SSteel lost less money and the stock is at 1.82.

Surely a TP of 1.93 would not be seductive for SSteel given the 'rich market liquidity'. No wonder the TP adjusted higher to 2.12.

lol.. lose less money means a higher TP.

Good reasoning eh?

Read more...

Megasteel And Lion Corp And Lion Diversified

Posted yesterday: How Deep A Trouble Is Megasteel In?

• Megasteel, a steel mill owned by Lion Corp, part of the Lion Group, failed to meet payment on the loans as the weaker global economy hurt the company’s financial performance.

Let's have a look at Lion Corp.

From Lion Corp last reported earnings: Quarterly rpt on consolidated results for the financial period ended 31/3/2009

Its financial costs are rather high at 125 million per quarter! Losses for the quarter is more than 540 million!

Cash balances is at 141 million.

Now look at the size of their loans! 4.19 Billion!!!!!!!!

Now surely Houston this is a problem!

And it was really mind boggling about their planned Vietnam project which is estimated at USD9.8 billion or some 34 billion ringgit!!!

How could they ever afford such a massive project?

Now we have Megasteel in default of loan payment.

Now this is not all.

If one reads the earnings notes, we will see the following.

• A wholly-owned subsidiary of the Company, Limpahjaya Sdn Bhd, has disposed of 66,666,667 ordinary shares of RM1.00 each in Megasteel Sdn Bhd ("Megasteel"), representing approximately 11.1% of the existing issued and paid-up share capital of Megasteel to Lion Diversified Holdings Berhad for a cash consideration of RM100,000,000.

WOW!

Brilliant move by Lion Corp eh?

They managed to sell 11.1% of their shares in Megasteel to its left hand (or is it right hand) Lion Diversified.

Did the earnings note say 100,000,000?

Lots of zeroes there yo!

My that looks like 100 million!!! And so much moolah for a mere 11.1% stake?!

WOW!

How much is this Megasteel worth????

Any math experts here?

Anyway, so how is Lion Diversifed doing?

Here is their last earnings note: Quarterly rpt on consolidated results for the financial period ended 31/3/2009

They lost some 296 million!

Now I had posted on Lion Diversified earnings before. This was my last update in Feb 2009. Comments On Lion Diversified Earnings

I had focused on three issues. Cash, Receivables and Loans.

Let's do a comparison. I will re-paste these 3 points and I will add in how they did in May in green bold font.

• 1. Cash balances increased to 302.428 million from 176.745 million three months ago. And if you look at the cash flow, the cash balance increased thanks to the fact that some 327 million was raised from the issuance of ICULS. Could you imagine the cash balances if this 327 million wasn't there?

Cash decreased from 302 million to just 143.364 million. Cash flow showed purchase of associate/subsidiary. LOL! Hello Megasteel!!!! ( How handy was that ICUL sale!!!!)

• 2. Trade receivables exploded to 683.976 million! Three months ago it was only 511.587 million.(what on earth is happening??????)

Receivables is now at 452.217 million. Improvement.

• 3. Total loans is now 1.001 Billion versus 986.542 million reported in its previous quarterly earnings!

Loans decreased to 952.377 million. ( So much loans and yet Lion D decided to buy a stake in Megasteel for 100 million!!! oO)

How?

If you are a Lion Diversified shareholder, are you happy with Lion Diversified buying a 11.1% in Megasteel only to read that Megasteel is now in default of its loans?

( Ah.. if really interested in some older stuff, look at this posting back in 2006: Lion Deal So Good? )

Read more...

How Deep A Trouble Is Megasteel In?

On Edge Financial Daily: Lion says Megasteel to sell assets to pay debt

• Lion says Megasteel to sell assets to pay debt
  Written by Bloomberg
  Thursday, 06 August 2009 11:35
  
  KUALA LUMPUR: Lion Group, which owns steel, property and retailing businesses, said its unit Megasteel Sdn Bhd plans to sell assets to pay debt and is getting support from lenders to reschedule RM1.05 billion of loans.
  
  “We have received positive indication from the lenders” and “so far, we have obtained approvals from some of them with the rest expected to revert in due course,” Lion said in an email to Bloomberg News. “Megasteel intends to sell some of its non-core assets.”
  
  Megasteel, a steel mill owned by Lion Corp, part of the Lion Group, failed to meet payment on the loans as the weaker global economy hurt the company’s financial performance.
  
  Megasteel is in the “final stage” of negotiating with Bank Pembangunan Malaysia Bhd and the syndicated term-loan lenders in order to meet its financial obligations, Lion Corp said in a statement on Monday.
  
  Lion Corp’s shares gained as much as 1.1% yesterday to 48 sen, but closed lower at 46.5 sen, down one sen from the previous day.
  
  The lenders haven’t declared that an event of default has occurred, the statement said. Malaysia’s stimulus plans and a recovery in the global economy will help revive demand for steel products, Lion said in the email yesterday.
  
  The steel industry has “picked up” and steel prices have “stabilised”, it said. “We are already seeing signs of improved orders for our steel products.” — Bloomberg
  
  
  This article appeared in The Edge Financial Daily, August 6, 2009.

I was always bemused by that Megasteel project.

Last time, during the Asia Financial crisis, Lion group got into massive trouble due to massve debts.

It survived barely after major group restructuring ( Yeah, for me, restructure is a correction of its mistakes. :p2 ) but then came its proposed steel plant project in Vietnam. And what blew my mind was that project was valued at some US9.8 Billion. I was bewildered. Lion Group is not in the best of financial health and why does it want to be involved in such a huge project? It was like deja vu all over again.

And it did not shock me at all when on Tueday there were news that Megasteel defaulted on its loans.

• Tuesday August 4, 2009
  
  Lion unit in default of credit facilities
  
  PETALING JAYA: Megasteel Sdn Bhd, a subsidiary of Lion Corp Bhd, is in default of a credit facility granted by Bank Pembangunan Malaysia Bhd and a syndicated term-loan facility granted by syndicated term-loan lenders.
  
  However, Megasteel remains “solvent as it will be able to pay all debts as and when they fall due within a period of 12 months from the date of this announcement,” Lion Corp told Bursa Malaysia yesterday.
  
  It said the downturn in the global financial and commodities market since the fourth quarter of 2008 had caused a “drastic weakening” of the domestic and global steel markets, adversely affecting Megasteel’s financial performance.
  
  “As a result, Megasteel was not able to meet the principal payment due in respect of the credit facilities,” it said.
  
  As at July, Megasteel’s total outstanding principal amount stood at RM47.6mil for the Bank Pembangunan credit facility and RM1bil for the syndicated term-loan.
  
  Lion Corp said Megasteel was in the final stages of negotiations to schedule the repayment of the credit facilities. ( source: http://biz.thestar.com.my/news/story.asp?file=/2009/8/4/business/4449858&sec=business )

Aren't you amazed? The current loan amount is rm47.6 mil for credit facility and rm1 bil for syndicated term-loan. And Megasteel had already defaulted.

So what do you expect for it's steel plant project? That's worth some 34 Billion plus!

Which was why end July there were news out that Lion Group is reconsidering this project: http://www.intellasia.net/news/articles/business/111270562.shtml

But that's not what I want to say.

I am not keen on the steel sector at all. Them locals experts like OSK had repeatedly made buy calls based on assumption that the steel players will return to profitability. Yeah, them steel makers are STILL losing money. How ironic. Look at them steel stocks. See how much they had gained recently. ( lol - yeah, i do believe you know what I am trying to question here. Yeah and the price targets given to LionInd had been truly incredible. lol )

Anyway, in the posting Life Is Grand For Parkson Holdings, I had mentioned Lion's bossie had been disposing his shares a lot.

Now when one put today's article on Lion Group selling asset to pay its debts into perspective, aren't you a bit concerned? The steel business of Lion Group is in deep trouble yet again and stern actions like selling assets to repay debts is now being considered.

So how now my dearest?

Are you a bit concerned?

Or you reckon that this worries are way overblown.

Read more...

15 May 2009: OSK Said Buy Lion Industries. Target Price 1.90

27/2/2009 Quarterly rpt on consolidated results for the financial period ended 31/12/2008

Lion Industries lost some 45.9 million.

Lion Industries just reported its earnings.

Of course Lion Industries quarterly earnings caught my attention. It was one of OSK featured stock in its Long Steel research report dated 15th May 2009.

Look at the nice price target of 1.90 given by OSK.

Lion Industries closed at 1.35 today.


The above snap shot showed how Lion Industries, the stock, had performed the past 3 months.

It was just on 17th March 2009, Lion Industries was trading as low as 0.57.

And on May 15th 2009, Lion Industries soared to 1.27. And it doesn't take a genius to see that the stock had more than doubled what it was trading almost 2 months ago.

But yet, OSK insisted on making a huge buy recommendation on Lion Industries and gave it a rosy target price of 1.90.

Isn't this the typical buy high sell higher recommendation?

Today Lion Industries announced it lost more than 250 million for the quarter!

• For the nine months of the financial year, the Group posted a lower revenue of RM3.6 billion compared to RM4.8 billion a year ago. Demand for steel products of the Group was adversely affected by the global economic slowdown. In line with the steep plunge in global steel prices, the Group had recognised a provision for diminution in value of its steel inventories amounting to RM440 million.
  
  The Group recognised a negative goodwill of RM123 million arising from the acquisition of Silverstone Corporation Berhad by its listed subsidiary, Lion Forest Industries Berhad.
  
  After accounting for lower profit from the associated companies and lower finance costs, the Group registered a loss before tax of RM297 million for the period under review against a profit of RM407 million a year ago.

And yes, that negative goodwill from its so called acquisition of Silverstone. Yeah, some might call it bail-out. And since it's a group related transaction, there are many who simply aren't too impressed.

Anyhow, OSK said BUY woh.

Target Price of 1.90....

How now my dearest Brown Cow?

You mau?

Read more...

Mycron Steel, Yet Another Steel Player Announcing Losses

On The Financial Edge Daily Another quarter of loss for Mycron

• Another quarter of loss for Mycron
  Written by Joy Lee
  Wednesday, 20 May 2009 23:47
  
  KUALA LUMPUR: Mycron Steel Bhd posted a net loss of RM22.89 million for third quarter ended March 31, 2009, versus a RM5.22 million net profit a year earlier due to impairment loss on inventory to net realisable value by RM23.1 million.
  
  It said impairment loss was due to drastic drop in demand and a significant drop in the raw material price and the selling price of steel products. Revenue dropped 38% to RM66.73 million from RM107.62 million a year earlier. No dividend was declared.
  
  The net profit widened from a loss of RM18.83 million in the preceding quarter. For the cumulative nine month period, Mycron posted a net loss of RM38.55 million versus a net profit of RM9.51 million a year earlier, while revenue was higher at RM301.56 million versus RM282.20 million previously.
  
  Mycron expected international steel prices and demand for steel products to continue to soften and remain unpredictable but may stabilise in the second half of 2009.

Don't worry.

Them market experts have already stated the losses are as expected and that market will discount all them bad news and that the stocks have already priced in (or is it priced up?) all them bad news.

Life is good.

LOL!

:p2

Read more...

Would You Have A Punt On The Steel Stocks?

On The Edge Financial Daily: MISIF: Steel players hope to break even

• KUALA LUMPUR: The local steel industry continues to see a challenging year ahead as waning domestic and external demand is compounded by overcapacity due to over expansion.
  
  “Given such a scenario, prices of steel are not likely to recover soon. Most Malaysian steel players are mainly talking about breaking even, with only the smaller players with lesser capacity able to be profitable,” said Chow Chong Long, president of Malaysian Iron and Steel Industry Federation (MISIF).
  
  The apparent increase in overseas demand lately offered a much-needed reprieve for local steel millers, said Chow, as the domestic industry had been hit by overcapacity that led to stockholding and a sharp drop in capacity utilisation.
  
  “Most of our steel millers are operating at around 50% or less of their full capacity, and exports on average account for around 20% of their total production,” Chow told The Edge Financial Daily on the sidelines of the Southeast Asia Iron & Steel Institute Conference here yesterday.
  
  Last year, Malaysia exported around RM10.5 billion worth of iron and steel products, with Singapore, Indonesia and Thailand accounting for RM4.6 billion of the total. Total trade in iron and steel products amounted to RM35.3 billion, or around 4.4% of the country’s total trade.
  
  “The increase in orders mainly came from this region, with China and Vietnam leading the way. But no one is sure how long this would last, while domestic demand is still weak,” said Chow.
  
  He added that recovery would be modest and gradual by the end of the year. The federation expects demand to contract by another 25% this year from 2008, largely due to the more than 50% dive in the first quarter. Total demand for steel products saw a 10.7% drop last year from 2007.
  
  Chow said the last two months had seen some effect from the economic stimulus measures announced by the government, helping to spur domestic demand for long steel products (used mainly in construction work) as spending on public infrastructure, including schools, increased.
  
  A total of RM15.6 billion from the RM67 billion stimulus packages has been allocated for construction and related industries. However, the demand for flat steel products (mainly used in consumer goods such as cars) is expected to remain weak, due to the lack of catalysts to spur such demand in the near term.
  
  Chow said the key message to Malaysian steel millers was to be realistic, and to acknowledge that the peak in demand and production enjoyed in early 2008 would not return in the near future.
  
  “They have to produce according to demand. While the large inventories besetting the industry have largely been addressed in the first quarter, the problem of overstocking that depressed prices could return if all the steel millers start to ramp up production again,” Chow said.
  
  Steel bars now cost around RM2,000 per tonne, after dropping to as low as RM1,600 in the first quarter, but still a far cry from its peak of around RM3,800 during its peak in July last year, Chow added.

Meanwhile, local steel players like Perwaja Holdings and Kinsteel reported huge losses.

Ah. Not to worry my dearest Brown Cow.

The bad news as usual is discounted, so says the market sifu.

Perwaja is up some 8% and Kinsteel is up some 6%.

Last night, Perwaja announced that it lost some 56 million, while Kinsteel lost some 34.7 million.

So how discounted is the bad news huh?

Let's see. As per the industry president, Mr. Chow. Steel prices used to sell around rm3800 at its peak. It fell to as low as rm1600 but has recovered to around rm2000.

So clearly, things aren't as bad, since the prices has stopped falling and has recovered to rm2000 from rm1600.00.

So would you buy the stock since the prices have recovered (discounting the fact that as per the industry president, Mr.Chow, saying that our steel millers are only operating at 50% capicity and that most steel players are talking about breaking even only)?

How about taking a look at how the stocks has performed since March 2009?

This is Perwaja.

Perwaja was trading as low as 59 sen back on 16th March 2009. It last traded at 1.20.

Here is the link to its earnings report last night: Quarterly rpt on consolidated results for the financial period ended 31/3/2009

And here is how Kinsteel is doing.

Kinsteel was trading as low as 0.36 back on 20th March 2009. It last traded at 85 sen.

Here is the link to its earnings report last night. Quarterly rpt on consolidated results for the financial period ended 31/3/2009

How?

One can indeed point out that the market discounts the bad news. And the fact that China and Vietnam has been ordering steel bars, the future is indeed very bright for the steel players.

But as mentioned by the industry president, how long would these orders last?

And look at the stock prices. Discounting the bad news is understandable but isn't it possible that based on the recent price movements, stocks like Perwaja and Kinsteel have simply grossly over discounted the bad news? Not possible?

And some punters would simply say I write too much. LOL! Yes, as mentioned, the short term market movements have nothing to do with market fundamentals. Screw the fundamentals dude! This is a traders market! Fundamental talk is obsolete! LOL!

So what's the conclusion?

LOL!

Don't ask me. Haven't I said earlier that I Who Know Nothing?

*whistle*

Oops. A thousand apologies. Missed this other article. RHB overweight on steel sub-sector

• RHB Research upgraded its recommendation on the steel sub-sector to overweight from neutral on the back of better earnings visibility.
  
  To clarify, the steel sub-sector includes not only the steel players but also companies that deal with metallurgical coke. Metallurgical coke is used as an energy source for the smelting of iron ore in the manufacturing of steel.
  
  “The recent strong run-up in share prices has yet to fully reflect the fundamentals of steel stocks that will improve substantially in the near term as the RMB4 trillion (RM2.1 trillion) stimulus plan by the Chinese government has started to kick in,” said RHB.
  
  The research house also pointed out that concerns on dumping from Chinese long steel producers have eased, while rising crude oil prices will help to boost demand for long steel products in the Middle East.
  
  “However, we are maintaining our view that the recovery in both the demand and prices of flat steel products will lag the long steel products. We only expect a mild recovery in this segment due to the Chinese government recently raising export rebates for flat steel products and hefty duties slapped on the US Commerce Department on standard steel pipes imported to the US from China since June 2008 have prompted Chinese steel pipe producers to divert their products to the international market ex-US,” said RHB.
  
  RHB is also cautious on the metallurgical coke sector stating, “Despite the higher capacity utilisation in China’s steel sector will boost demand and process of metallurgical coke, this does not necessarily enhance metallurgical coke producers’ profitability, given that these producers inherently have little bargaining power against its customers and suppliers.”
  
  RHB rationalised its valuation base year for the sector from the average of CY2009 to CY2010 to CY2010 for valuation purposes.
  
  “Also, to reflect increased investors’ appetite as well as improved earnings visibility, we are raising our one-year forward target price earnings ratio (PER) for the steel sub-sector players by 1 to 3 times from 6 to 7 times to 7 to 10 times,” said RHB.
  
  The research house’s top picks for the steel sub-sector include Ann Joo Resources Bhd, Kinsteel Bhd and Sino Hua-An International Bhd.
  
  “We believe Ann Joo and Kinsteel would be the major beneficiaries from the upswing in demand and prices for long steel products, as it is one of the biggest long steel producers in Malaysia.”
  
  “While we anticipate Sino Hua-An to report a dismal first quarter in financial year 2009 (1QFY2009), we view the company as the best proxy to invest in the booming steel sector in China, given that the demand for metallurgical coke is tied directly to China’s steel output,” said RHB.
  
  RHB has an indicative fair value of RM3.02 for Ann Joo, RM1.25 for Kinsteel and 60 sen for Sino Hua-An.
  
  Among the risks RHB foresees for the steel sub-sector are changes in export policies in the world’s major steel-producing countries that will result in dumping activities and a steeper-than-expected contraction in global steel consumption, among others.
  
  “Risks for metallurgical coke sub-sector include increases in China’s export tariff for steel that will hurt demand for metallurgical coke and higher-than-expected metallurgical coal prices that will erode metallurgical coke producers and lower contribution from high-margin by-products,” said RHB.
  
  
  This article appeared in The Edge Financial Daily, May 19, 2009.

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A Quick Look At Southern Steel And The Steel Sector

April 2nd. On the Financial Edge.

• OSK says worst is over for steel mills
  Written by Financial Daily
  Thursday, 02 April 2009 11:13
  
  OSK Research strongly believes that the worst is over for steel mills despite the gloomy outlook for the sector and poor earnings visibility of steel mills.
  
  “Reiterate overweight considering the strong asset backing of the local steel mills that are trading in the range of 0.15 times to 0.7 times price over net tangible asset, which are mostly below their historical trough level at -1 standard deviation. We think that the long steel companies under our universe at least justify a neutral or buy recommendation,” it added.
  
  However, the research house reckoned that steel mills might be at risk of running into another loss-making quarter or two before returning to the black.
  
  “We think the potential cumulative losses are limited given the small downside on steel prices from current levels. We are keeping our buy recommendations on Lion Industries (TP: RM1.60), Southern Steel (TP: RM1.82), Masteel (TP: RM1.03) and Kinsteel (TP: RM0.55) but rate Ann Joo (TP: RM1.12), and Perwaja (TP: RM0.70) as neutral,” OSK added.
  
  Bloomberg recently reported that Chinese steelmakers have asked iron ore suppliers to temporarily cut prices by 40% until an annual contract price agreement is reached.
  
  OSK said based on the old annual contract price for iron ore and coking coal that was supposed to end Tuesday, the blast furnace (BF) cost structure has become much more expensive compared with electric arch furnaces (EAF), which enjoy cheap input from a sharp plunge in scrap metal prices.
  
  “Assuming the news is correct, the new raw material price will bring BF production cost only slightly higher than the 2007 level, thus improving the competitiveness of iron ore-based producers. The new price mechanism is also timely Ann Joo’s mini-BF project, as the new costing would render its investment in hot metal processes economically viable upon commissioning in 1QFY10,” the research house said.

April 17th. On the Star Business. Steel sector shows early signs of recovery, prices improve

• PETALING JAYA: Long product steel millers will soon get back on the road towards profitability as demand and prices have rebounded from their lows of recent months.
  
  Malaysia Steel Works (KL) Bhd (Masteel) managing director Datuk Seri Tai Hean Leng said prices of long steel products had bottomed out from their lows in December and January after rebounding 10% to 15%.
  
  “While prices are expected to remain range-bound until the fourth quarter, demand has improved by 15% in the past month,” he told StarBiz in an email reply.
  
  Inventory levels in the steel mills will continue to fall from all-time highs in November and December last year.
  
  One of the factors in this recovery is the significant withdrawal by China, a major player, from the regional export markets.
  
  China’s export volume for steel products had been reduced to about 5% of the country’s gross output as its domestic demand surged upon implementation of its US$586bil stimulus package, he said.
  
  According to a Bloomberg report, China’s steel exports fell almost 55% in the first quarter to 5.14 million tonnes from the corresponding period last year.
  
  Tai said countries like Turkey and Taiwan, as well as Malaysia would be able to fill the supply gap left by China as these countries enjoyed advantages in pricing and freight costs in their respective regions.
  
  Exports of steel from Malaysia are thus expected to resume and gradually increase.
  
  Masteel expects some price volatility in the second and third quarters, as higher steel prices would face resistance, and prices would fall again as additional supply rushes in to meet demand.
  
  Nonetheless, the worst was over for steel mills, Tai said, adding that demand would pick up substantially in 2010. “We do not expect any write-downs from the second quarter onwards.”
  
  An officer from a big steel mill, who declined to be named, said signs of recovery were visible although the market was still relatively soft.
  
  “Prices have stabilised somewhat, and inventory levels are also being steadily reduced as a result of the de-stocking exercise carried out over the pass few months,” he added.
  
  AmResearch said in a report that steel prices were lifted by huge reduction in global steel production, tighter scrap supplies and further consolidation in the Chinese steel sector.
  
  It cited US steel consultancy Global Steel Dynamics’ expectation that global steel production could drop 14% this year from last year’s levels. In the first two months, global steel production had fallen by 22% to 24%.
  
  The research house also noted that global prices of billets had risen by US$40 per tonne in the last two weeks, suggesting that recovery was gaining momentum as various countries’ stimulus packages, particularly from China, had started to take effect.
  
  OSK Investment Bank analyst Ng Sem Guan said demand and prices of long products had improved on rising construction and property activities.
  
  “China has removed VAT (value-added tax) for flat steel but maintained the 15% to 25% export tax on long products, which is an indication that they are in demand for domestic consumption,” he said.
  
  Nevertheless, steel companies are expected to post one to two more months of losses before showing gradual earnings recovery in the second half. “We expect full recovery to happen in 2010,” Ng said.

27th April, on the Financial Edge.

• Stimulus packages boosting steel demand
  Written by Tony C H Goh
  Monday, 27 April 2009 00:21
  
  KUALA LUMPUR: “Green shoots” appear to have taken a foothold in the global steel industry as demand rises amid the various economic stimulus packages worldwide, but volatility could last until the end of the year, according to analysts and industry players.
  
  “We saw a very drastic drop in demand in the fourth quarter of last year. In December, for example, demand by the market in general dropped by more than 90%,” said local steel maker Malaysia Steel Works (KL) Bhd’s (Masteel) managing director Datuk Seri Tai Hean Leng.
  
  He said the over-correction had led to a sharp decline in stockholdings and prices as production slowed.
  
  “While we have also experienced an increase in demand of around 10% to 15% (since the beginning of the year), the price of steel is still not attractive enough,” Tai told The Edge Financial Daily.
  
  He said although steel billet prices had appreciated as much as 15% in the international market in recent months in tandem with the rise in demand, there was still no clear sign of any significant change in demand locally.
  
  Local steel bars are now priced at around RM1,800 per tonne versus its peak of almost RM3,000 last year, while steel billet is trading at around US$375 to US$385 (RM1,339 to RM1,374) in the international market compared to nearly US$1,000 per tonne in July 2008.
  
  Meanwhile, in a reply to The Edge Financial Daily, Lion Industries Corporation Bhd’s spokesperson said there was some slight improvement in domestic demand, while “there is also demand for export but international prices are still depressed”.
  
  The spokesperson said “inventories have been reduced to match the sales and production level” and it planned “to maintain low inventories”. He added that any improvement would depend on demand and price.
  
  According to a recent report by AmResearch, Ann Joo Resources Bhd, the country’s largest steelmaker by market capitalisation, had received 40,000 to 50,000 tonnes of new orders from the overseas market in the past two weeks.
  
  It was believed to be the company’s biggest order in six months, and Ann Joo had also resumed full production at its plant this month after a two-month shutdown. Exports were expected to reach 50% of its sales this year, up from about 30% in 2008 as Malaysia’s economy slowed, according to AmResearch.
  
  Goldman Sachs Group Inc had recently raised its gross domestic product growth forecast for China to 8.3% this year from 6% previously, attributing the upgrade to the nation’s four trillion-yuan (RM2 trillion) stimulus package.
  
  “Overseas demand at least has shown sign of recovery and the China factor is one of the reasons for the apparent rebound in external demand. The country became a net importer of steel since March,” said an industry analyst from TA Securities.
  
  “While that is a sign that demand is gradually normalising, the volatility is expected to remain until the fourth quarter of this year. But next year could be a good year for steel players if the stimulus packages announced globally are effective,” said Tai.
  
  Last Friday, among the steelma-kers, Ann Joo dropped two sen to close at RM1.65, Masteel rose one sen to 87 sen, Southern Steel Bhd, Malaysia’s second-biggest steel maker, lost two sen to RM1.67. Lion Industries was up 5.5 sen to RM1.05, while Kinsteel Bhd gained 0.5 sen to end at 62 sen.

On Tuesday, 5th May 2009 Southern Steel sees light at the end of the tunnel

• The company hopes to see a modest recovery in the demand for steel products in the second half of this year with the kicking in of stimulus packages both locally and abroad
  
  SOUTHERN Steel Bhd (5665) expects demand for its products to recover in the second half of this year, driven by government measures locally and abroad.
  
  Countries around the world are trying to spend their way out of a recession. Malaysia for instance, is spending money on infrastructure like roads, to revive economic activity.
  
  This is likely to spur demand for steel products like steel bars and wire rods, products made by Southern Steel.
  
  The company's general manager and chief financial officer Koay Chong Beng said the steel industry is due to see some light at the end of the tunnel soon.
  "We hope to start seeing a modest recovery in the second half of this year with the kicking in of stimulus packages both locally and abroad," he told reporters after the company's annual shareholders' meeting in Seberang Prai, Penang.
  
  Steel was one of the commodities hardest hit by the financial crisis.
  
  "Prices and sales volume dropped more than 50 per cent within three months from September to November last year and the crisis badly affected the performance of all the companies within our group in the last quarter of the year," he added.
  
  The plunge in demand meant that its normal stock levels doubled to more than six months. It also bought the stocks when steel prices were high.
  
  As prices fell, Southern Steel had to write down the value of its inventory and it took a RM359 million hit.
  
  The company's chief operating officer Chow Chong Long said Southern Steel is committed to spend RM50 million this year to upgrade its Penang facility.
  
  "Our inventory levels are currently the lowest among the country's five integrated steelmillers.
  
  "Our term loans which total US$25 million (RM88 million) will be fully paid off by August," said Chow.

Last night Southern Steel announced its earnings.

Revenue plunged and losses were huge.

Of course, some would argue that the market is already discounting this 'bad; news and would say that the losses were already as expected. :p2

Of course, some would also say that the way the market is discounting the bad news is rather excessive and that the massive run in some steel stocks simply isn't justifiable. :p2

The following chart shows the massive price movement in Southern Steel recently.



How now brown cow?

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A Very Brief Look At A Leading Steel Stock: Southern Steel

Southern Steel announced its quarterly earnings. Quarterly rpt on consolidated results for the financial period ended 30/9/2008

I thought it was extremely interesting to see how it perform since I do regard Southern Steel as one of the leaders in the steel sector.

Here's the briefest of brief look at how it performed.



Looks really superb if one compares what it earned for the same period last year!

However, as we all knows, looks can be so deceiving at time!

3 months earlier, in August 2008, Southern Steel announced the following set of numbers.


3 months ago, Southern Steel reported net earnings of 202.466 million. It was a bumper time!

In today's earnings, Southern Steel net earnings only totals 65.697 million!

Not looking good at all considering that steel prices and demand has dropped!

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