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Thursday, June 23, 2011

LIONIND - Exiting The Steel Empire (OSK)

We welcome Lion Industries Corp (LICB)’s potential exit from the cyclical steel industry via the disposal of Amsteel Mills SB to China’s Baosteel Group as this will unlock the value of its steel unit, which has been largely ignored by the market. We think that book value (BV) may be an appropriate yardstick to assess this sale and the BV of LICB’s steel unit in FY10 was RM2.14 a share. While we upgrade LICB to Trading BUY, we prefer a conservative valuation pending official word from the company. We are switching LICB’s valuation to SOP, on which we peg a 50% holding company discount on its listed units’ market value and a 20% liquidation discount on its steel unit’s BV, and arrive at a fair value of RM2.73.

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