Steel sector upgraded to "overweight"

OSK Research Sdn Bhd has upgraded the Malaysian steel sector to an "overweight" amid merger and acquisitions and iron ore concession news set to add glow to the industry.

"We are turning positive on the steel sector and believe the merger and acquisition fever within the sector, and news of iron ore mining concessions being up for grabs soon may create a new theme play in the market," it said in a research note today.

Recent reports of China's Baosteel being in talks to buy a stake in Amsteel Mills have inadvertently sparked off a merger and acquisition fever in the Malaysian steel sector.

"We think that local steel mills offer a good platform for overseas investors wishing to tap into the huge population in South East Asia, especially with the good basic infrastructure, stable utilities supply and a skilled workforce in the country," OSK Research said.

It said local mills with integrated set-ups present better investments compared to their neighbouring peers, which are largely focused on downstream operations.

"As part of Asean, Malaysia enjoys tariff advantages under the ASEAN Free Trade Area (AFTA), which puts local mills in a strategic position to tap the region's borderless export markets," OSK Research said.

It has a trading "buy" call on Lion Industries, Ann Joo and Perwaja, and has also upgraded Kinsteel to a "neutral", as these four companies are potential winners from the fresh theme plays.

OSK Research, however, has maintained the "neutral" rating on Southern Steel and Malaysia Steel Works. -- BERNAMA