RHB REsearch downgrades Malaysia Steel to Neutral

KUALA LUMPUR: RHB Research has downgraded Malaysia Steel Works (MSW) to Neutral from Trading Buy with a lowered fair value of RM1.07 from RM1.08.
In a note on Tuesday, the research house said it sees the electricity tariff revision causing investors to shy away from the sector, especially considering the two steel counters that were recently designated as PN17 companies.
“We are also keeping a close eye on MSW’s proposed Iskandar rail project as this first-of-a-kind project for the company will involve high capex that could increase gearing if it proceed,” it said.
It said similar to its peers, MSW uses approximately 600 kWhr of electricity to produce a tonne of billets and 110-120 kWhr for a tonne of bars from billets.
“As such, electricity cost makes up about 10% of its production cost. The company falls under the “special industrial tariff’’ group that is subject to a 18.8% electricity tariff hike from Jan 2014.
"We slash the company’s FY14 earnings by 58% after incorporating the new tariffs,” it said.