Friday 29 Mar 2024
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KUALA LUMPUR (Feb 13): Kenanga IB Research has downgraded the Building Materials sector to “Neutral” from Overweight previously as it are now expects the steel sector to be more challenging in the near-medium term.

In a note Friday, the research house said this was premised on the absence of anti-dumping trade actions by the government.

“We believe the absence of remedies from the government to curb the rising import activities of steel products could lead to: (i) declining local steel players’ market share and (ii) depressed steel prices.

“In view of this issue, there is possibility of further earnings cuts for CY15 amongst the steel players as current average selling prices are about 5.0% lower than our assumed RM2,000/MT,” it said.

Kenanga IB Research said downside risks were limited at this juncture as the two steel players were trading close to trough PBV valuations.

However, it said the booming construction activities in local market may not help the steel industry recover if the oversupply situation in China persists.

“Pursuant to the de-rating, we downgrade Ann Joo Resources Bhd and Malaysia Steel Works (KL) Bhd to Market Perform with lower target price of RM1.09 and 92 sen (previously RM1.47 and RM1.20 respectively) as we lowered our valuation basis.

“We prefer Press Metal Bhd (OP; TP: RM5.18) due to (i) strong aluminium sector fundamentals driven by global demand (ii) industry-leading margins of 16.7% vs global peers’ 6.5% and (iii) bright earnings outlook driven by capacity expansion.

“Maintain Market Perform on Lafarge Malaysia Bhd (MP; TP: RM10.00) due to rising local competition which could lead to depressed pricing in the near-medium term,” it said.

 

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