News Room - Steel Industry

Posted on 15 Apr 2008

Tata rides confidence wave

2007 earnings tipped to rise to Bt1.53 bn from higher steel price 

Tata Steel (Thailand)'s shares yesterday briefly hit a three-year high at Bt2.36, thanks to the sharp increase in domestic steel prices.
 
The stock has risen constantly from Bt2.04 at the closing price on March 14 to Bt2.24 at market's close yesterday, or almost a 10-per-cent increase.

According to the Securities Analysts Association, 14 brokers recommend "buy", while two brokers suggest "trading buy". Seamico Securities and Phillip Securities (Thailand) have set the highest target price for Tata Steel stock at Bt3 each.

Siam City Securities said the company's business strength is backed by its parent firm, which is a prominent world iron-ore manufacturer, and also its network across regions. Support from the parent firm, Tata Steel of India, can keep Tata Steel (Thailand)'s margin at a high level and enhance the Thai firm's sustainable growth, the broker said.

The company's plan to establish an iron-smelting plant to be operated in late 2008 would help it slim down operating costs and enhance its sustainable growth, Siam City Securities said.

The broker has raised its 2007 financial year earnings forecast from Bt1.2 billion to Bt1.53 billion on the back of the rising steel price and a 10-per-cent effective tax rate due to tax shielding.

The broker has maintained its 2008 financial year net profit estimate at Bt1.46 billion based on assumptions that the steel price would weaken in the second half of this year while the price of scrap, accounting for 70 per cent of Tata Steel (Thailand)'s costs, tends to go up. It has also kept its average gross profit margin estimate for Tata Steel (Thailand) at 12.65 per cent in 2008.

Given the recovery in the country's economy, the broker estimated that Tata Steel (Thailand)'s production in 2008 would rise from 325,000 tonnes last year to 337,5000 tonnes.

The broker is likely to raise the stock's fair value in 2008 as every Bt0.25 per kilogram the company increases prices will push up the fair value by Bt0.30 per share.

Trinity Securities recommends "buy" on the stock with a target price of Bt2.90 each.

The broker is bullish over Tata Steel (Thailand)'s business outlook as the domestic steel rod price has risen from Bt21 per kilogram in October last year to Bt29 per kilogram in March this year.

The broker forecast that Tata Steel (Thailand)'s revenue and net profit in its 2007 financial year ended March 31, 2008, would increase 48 per cent on year and 154 per cent on year to Bt27.91 billion and Bt1.8 billion, respectively.

The broker estimated that Tata Steel (Thailand)'s Bt3.5-billion smelting plant, with an annual production capacity of 500,000 tonnes, would allow the company to have sufficient raw materials to produce billet. The plant would create economies of scale and this would increase the company's gross profit margin from 11 per cent in 2007 to 13 per cent in 2009.

Kim Eng Securities (Thailand) is less optimistic than Siam City Securities and Trinity Securities and it recommends "speculative buy" for the stock with a target price of Bt2.40.

Cost-push factors are still pressuring steel prices upward. Steel manufacturers using billet and slab as raw materials are at a disadvantage over Tata Steel (Thailand) and G Steel which use scrap.

 Tata Steel (Thailand) in its third quarter financial period ended December 31, 2007, surged from Bt439.44 million in the corresponding period a year earlier to Bt616.56 million.