SSteel- a temporary bottom in place?

Result Update
SSteel returned to the black in QE31/3/2013,
with a net profit of RM18.3 million on the back of a revenue of RM725
million. The improved performance was attributable to higher sales
volume & better selling prices.

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Table: SSteel's last 8 quarterly results

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Chart 1: SSteel's last 28 quarterly results

Industrial outlook

SSteel,
a major steel wire rod producer, is expected to benefit from the
government's decision to impose anti-dumping duties against some
exporters, particularly those from China. With the imposition of such
duties, the selling prices of steel wire rod produced locally should
improve. In addition, the price of iron ore, which had risen for the
past few months, appears to have peaked in the past few weeks. These
two favorable factors could see SSteel recording better results in the
next few quarters.

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Chart 2: Steel Wire Rod & Iron Ore price charts for past 5 years to March 2013 (Source: Indexmundi)

Valuation

SSteel
(closed at RM1.38 yesterday) is now trading at a PE of 14 times (based
on last 4 quarters' EPS of 10 sen). However, if we annualized SSteel's
earning based on its latest result, then its future EPS could be 17.6
sen and its future PE would be 7.8 times. It is currently trading at a
Price to Book of 0.67 times (based on its NTA of RM2.07 as at
31/3/2013). Based on these PE & PB multiples, SSteel is deemed
fairly attractive.

Technical Outlook

SSteel has
been in a downtrend for the past 3 years. It may have formed a base at
RM1.30-1.35 level. If the earning for the stock continues to improve,
the share price should rebound to test the downtrend line (S1-S1) at
RM1.65-1.70.

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Chart 3: SSteel's daily chart as at April 29, 2013 (Source: quickcharts)

Conclusion

Based
on improving financial performance & relatively attractive
valuation,SSteel could be a good stock for long-term investment.
However, its technical outlook has not turned positive- albeit a
temporary base formed at RM1.30-1.35- and buying, if any, should be
gradual.

Note:
In
addition to the disclaimer in the preamble to my blog, I hereby confirm
that I do not have any relevant interest in, or any interest in the
acquisition or disposal of, SSteel.

Author: Alex Lu