RHB Research upgraded its recommendation on the steel sub-sector to overweight from neutral on the back of better earnings visibility.
To clarify, the steel sub-sector includes not only the steel players but also companies that deal with metallurgical coke. Metallurgical coke is used as an energy source for the smelting of iron ore in the manufacturing of steel.
“The recent strong run-up in share prices has yet to fully reflect the fundamentals of steel stocks that will improve substantially in the near term as the RMB4 trillion (RM2.1 trillion) stimulus plan by the Chinese government has started to kick in,” said RHB.
The research house also pointed out that concerns on dumping from Chinese long steel producers have eased, while rising crude oil prices will help to boost demand for long steel products in the Middle East.
The research house’s top picks for the steel sub-sector include Ann Joo Resources Bhd, Kinsteel Bhd and Sino Hua-An International Bhd.
“We believe Ann Joo and Kinsteel would be the major beneficiaries from the upswing in demand and prices for long steel products, as it is one of the biggest long steel producers in Malaysia.”
“While we anticipate Sino Hua-An to report a dismal first quarter in financial year 2009 (1QFY2009), we view the company as the best proxy to invest in the booming steel sector in China, given that the demand for metallurgical coke is tied directly to China’s steel output,” said RHB.
RHB has an indicative fair value of RM3.02 for Ann Joo, RM1.25 for Kinsteel and 60 sen for Sino Hua-An.
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