Posted on 22 May 2008
Steel stocks rallied after the Government’s
move to liberalise the steel sector came into effect yesterday, with Southern
Steel Bhd and Ann Joo Resources Bhd closing 10-year highs as investors expect
the liberalisation to enhance the players’ earnings visibility.
Southern Steel closed 14 sen higher at RM3.20 and Ann Joo
was up six sen at RM3.88. Lion Industries Corp Bhd, which is part of the Lion
Group undertaking a RM1.62bil furnace project, jumped 18 sen to RM2.70.
Malaysia Steel Works (KL) Bhd (Masteel) advanced 13 sen to RM1.91 while
Kinsteel Bhd added four sen to RM1.59.
OSK Investment Research reiterated its “ultra bullish” view
that the steel sector would experience a “super cycle” for the next one to two
years.
It believed the removal of the ceiling price control would
enhance the earnings visibility of steel millers, thus enabling timely cost
pass through.
“Although the liberalisation on imports and exports may not
have any major impact on the local millers’ domestic market share, the
liberalisation of exports should be positive for our local steel manufacturers
as it would enable them to capitalise on the current regional shortage by
increasing the export of billets,” it said in a note.
OSK said there was a dire need of about five million tonnes
of billets in the Asean region.
With recent strong results announcements by Southern Steel
and Ann Joo, OSK believes other steel players are likely to record inspiring
figures at month-end.
OSK’s top pick for the sector is Lion Industries. It also
has “buy” calls on Ann Joo, Southern Steel, Masteel and Kinsteel.
“We also advise investors to add their positions on
companies scheduled to release their results by month-end as potential earnings
and target price upgrade is high,” it added.
Aseambankers, however, remains neutral on the domestic steel
sector.
“The slower local steel demand given delays or cancellations
of certain Ninth Malaysia Plan projects and slower property launches in the
second half are our concerns for local long steel producers,” it said.
However, the research house added that rising steel prices
and good demand in emerging markets should provide a strong buffer against a
slower domestic market for export-oriented steel players such as Ann Joo and
Kinsteel.
In a research note yesterday, CIMB Investment Bank
maintained its overweight stance on the sector, given the backdrop of rising
steel prices, very healthy global demand and industry expansion.
The International Iron and Steel Institute has forecast
global apparent steel consumption (ASC) to grow 6.7% to 1,282 million tonnes
this year from 1,202 million tonnes in 2007, underpinned by demand from
emerging markets such as China and India even as the US and EU economies
slowed.
The BRIC (
