Insider Asia’s Stock Of The Day: CSC Steel

by **Cals** Thu 20 Nov 2014, 01:43

Insider Asia’s Stock Of The Day: CSC Steel

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CSC Steel is one of the most cash-rich steel companies listed on Bursa Malaysia. It has cashpile of RM237.2 million with no borrowings as at end-June 2014. That is equivalent to RM0.64 per share or more than half of its current share price of RM1.12. This is a rarity for the steel industry, where companies typically have high borrowings to fund huge capital expenditure (capex).
CSC, formerly known as Ornasteel, is a subsidiary of China Steel Corporation of Taiwan. The company is involved in the manufacturing and marketing of flat steel products including pickled and oiled steel coils (PO), cold rolled steel coils (CR), galvanised steel coils (GI) and pre-painted galvanised steel coils (PPGI).
Operating conditions have been extremely challenging, especially for flat steel players such as CSC caught between material import restrictions and global steel glut. The company recorded a net loss of RM9.1 million in 1H2014 compared to a net profit of RM25.1 million in 1H2013. Sales declined 11.4% y-o-y to RM532.6 million due to significantly lower selling prices for its steel products despite a marginal increase in sales volume.
Given the poor outlook, CSC is trading at a significant discount of 44% to its book value of RM1.99. Positively, the company is likely to maintain dividends, which totalled at least 7 sen per share annually in the last five years, thanks to its strong balance sheet. That translates into higher than market average net yield of 6.3%. It has a dividend policy of distributing at least 50% of net profit.
The company spent RM28.1 million on capex in 2013, including investment in a pilot plant to produce bio-coal pellets from bio-mass using the torrefaction process. As of June 30, 2014, commercial production of the plant is still pending due to technical issues.
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This article first appeared in The Edge Financial Daily, on November 19, 2014.