Posted on 23 Jul 2008
The company, one of the two local producers of direct
reduced iron, will leverage on strong prices of steel, which are expected to
continue with their steady uptrend, thanks to robust demand.
“Steel prices are expected to continue to trend up over the
medium term on the back of global consumption growth that is still outpacing
supply,” a local brokerage said yesterday.
The domestic steel bar price is currently trading between
RM3,500 and RM3,700 per tonne while the international steel price is about
US$1,200 per tonne.
Steel makers like Perwaja are also able to raise prices of
their products to immediately pass on any additional costs due to this mismatch
in demand and supply. This put them in good stead, analysts said.
“Our main concern is an unexpected drop in global steel
prices, which could hurt earnings,” Hwang-DBS Vickers Research said in a report
yesterday.
Meanwhile, Perwaja - which is expected to raise about
RM175mil in listing proceeds - plans to upgrade some processes at its Kemaman
plant that is likely to see production increase by 20% from the current 1.5
million tonnes to 1.8 million tonnes by year-end.
The company also has plans to revive operations at two of
its three alternating current electric arc furnaces that are currently not in
use.
“Based on its expansion plans, we forecast financial year
ending Dec 31 (FY08) and FY09 net profit at RM389mil and RM464mil respectively,
taking into account gas and electricity hikes,” Hwang-DBS said.
The research outfit has derived a target price of RM5 for
the company, pegged to 1.5 times FY09 net tangible assets.
This implies six times FY09 earnings per share. It said
based on the RM2.90 initial public offering price, Perwaja would trade at FY09
price earnings of 3.3 times.
This was considered low compared with its peers.
Another brokerage, meanwhile, values Perwaja at RM5.75 per
share based on seven times FY09 earnings per share, at a one time multiple
discount to about eight times of its peers in
It said Perwaja should trade at a discount to its Chinese
peers, given that it was smaller in terms of annual capacity and market value.
The brokerage expects the company to register a net profit
of RM452.1mil for FY08 and RM460.2mil in FY09.
For FY07, Perwaja made a net profit of RM162.6mil.
