PP 7767/09/2010(025354)

10 August 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
MARKET DATELINE

10 August 2010

CSC Steel Share Price

Fair Value
:
:
RM1.78
RM2.10
1HFY12/10 Performance Soars On Improved Margins Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (CSC Steel; Code: 5094 ) Bloomberg: CSCS MK

Net Net
FYE Revenue Profit EPS Growth PER C. EPS * P/NTA Gearing ROE GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009 971.9 91.2 24.0 55.1 7.4 0.9 Cash 11.7 11.2
2010F 1,271.6 83.4 21.9 -8.5 8.1 23.1 0.8 Cash 10.3 8.4
2011F 1,360.8 88.7 23.3 6.4 7.6 24.6 0.8 Cash 10.6 8.4
2012F 1,461.4 93.9 24.7 5.9 7.2 - 0.8 Cash 10.7 9.0
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

RHBRI Vs. Consensus

♦ In line. 1HFY12/10 net profit of RM62.2m came in at 74.6% of our and Above
70.8% of the consensus full-year estimates. However, we consider the In Line
results within expectations as we believe CSC Steel’s performance is likely Below
to weaken significantly in 3Q, underpinned by the weakening in both
Issued Capital (m shares) 380.0
demand and prices of steel products since May 10.
Market Cap (RMm) 676.4
♦ YoY. 1HFY12/10 net profit soared to RM62.2m from RM15.1m a year ago Daily Trading Vol (m shs) 0.8
mainly due to: 52wk Price Range (RM) 0.99 – 1.94
Major Shareholders: (%)
1. Higher sales volumes and selling prices. Recall, both selling prices and
China Steel 45.0
sales volumes were affected by the weak global steel prices in
LTAT 10.0
1HFY12/09; and Lembaga Tabung Haji 4.9
2. Higher net interest income.
FYE Dec FY10 FY11 FY12
♦ QoQ. 2QFY12/10 net profit rose by 3.3% to RM31.6m from RM30.6m in EPS Revision (%) - - -
the previous quarter and this is mainly on the back of higher selling prices Var to Cons (%) -5.0 -5.1 -
and net interest income, which more than offset higher tax expense.
PE Band Chart
♦ Performance to strengthen in 4Q. While we anticipate CSC Steel to
report a significantly weaker 3Q performance (relative to 1Q and 2Q), we
believe CSC Steel’s performance will likely recover from 4Q onwards, as:
1) steel consumption is seasonally stronger in 4Q on the back of worldwide
seasonal stock replenishing activities; and 2) concerns on overcapacity are PER = 9x
PER = 7x
likely to ease in the near term, with several key steel makers in several PER = 5x
countries announcing production cuts in 3Q and recent positive news flows
on steel sector consolidation in China, which will boost buying sentiment of
steel products. Relative Performance To FBM KLCI

♦ Risks. The risks include: 1) oversupply in China that results in dumping

activities by Chinese steel producers in the international market; and 2)
steep contraction in global steel consumption that will weigh down on
international steel prices. CSC Steel

♦ Earnings forecasts. Maintained.

FBM KLCI
♦ Investment case. Indicative fair value is RM2.10, based on unchanged 9x
FY12/11 EPS of 23.3 sen, in line with our 1-year target forward PER of 9x
for the steel sub-sector. We continue to like CSC Steel for its: 1) strong
earnings outlook, underpinned by the improving demand for downstream Chye Wen Fei
products that will boost demand and prices of cold rolled coil (CRC) (603) 92802172
chye.wen.fei@rhb.com.my
products; and 2) strong balance sheet position, with net cash of RM282.5m
(or 74.3 sen/share) as of 30 Jun 10. Maintain Outperform.

Please read important disclosures at the end of this report.

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Table 2: Earnings Review (YoY Cumulative)

FYE Dec 2009 2010 % YoY Observations/ Comments
(RMm) 6M 6M Chg
Turnover 334.7 583.3 74.3 Due to higher sales volumes and selling prices.
Operating profit Margin expansion arising from higher selling prices and better economies
18.2 77.9 >100 of scale arising from higher capacity utilisation.
Net interest income Thanks to: 1) higher net cash, which increased to RM282.5m from
1.8 3.3 81.3 RM250.7m; and 2) higher interest rate.
Pretax profit 20.0 81.2 >100 Helped further by higher net interest income.
Taxation -4.8 -19.0 >100
Net profit 15.1 62.2 >100 Filtered down from pretax profit.
EPS (sen) 4.0 16.4 >100

Operating margin (%) 5.4 13.4 7.9 pts

Pretax margin (%) 6.0 13.9 8.0 pts
Net profit margin (%) 4.5 10.7 6.1 pts
Effective tax rate (%) 24.2 23.4 -0.8 pts

Table 3: Earnings Review (QoQ)

FYE Dec 2010 2010 % QoQ Observations/ Comments
(RMm) 1Q 2Q Chg
Turnover 281.6 301.7 7.2 Due to higher selling prices.
Operating profit 37.5 40.4 7.7 Filtered down from higher top line.
Net interest income 1.6 1.7 2.3
Pretax profit 39.1 42.1 7.4 Filtered down from operating profit.
Taxation -8.6 -10.4 22.1
Net profit 30.6 31.6 3.3 Filtered down from pretax profit.
EPS (sen) 8.1 8.3 3.3

Operating margin (%) 13.3 13.4 0.1 pt

Pretax margin (%) 13.9 13.9 -
Net profit margin (%) 10.9 10.5 -0.4 pt Weakened by higher effective tax rate.
Effective tax rate (%) 21.8 24.8 3.0 pts

Table 4: Earnings Forecasts Table 5: Forecast Assumptions

FYE Dec (RMm) FY09 FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 971.9 1,271.6 1,360.8 1,461.4 Production Volume (tonnes p.a.)

Turnover growth (%) -29.2 30.8 7.0 7.4 CRC 444,000 444,000 444,000
Hot Dip Galvanised Steel 240,000 240,000 240,000
EBITDA 149.1 142.7 145.3 147.6 Pre-painted Galvanised Steel 120,000 120,000 120,000
EBITDA margin (%) 15.3 11.2 10.7 10.1
Utilisation Rate (%)
Depreciation -37.4 -40.3 -37.9 -35.7 CRC 65 70 75
Net interest income 111.7 102.4 107.4 111.9 Hot Dip Galvanised Steel 55 60 60
Pretax profit 116.6 106.9 113.8 120.4 Pre-painted Galvanised Steel 75 80 80

Taxation -25.4 -23.5 -25.0 -26.5

Net profit 91.2 83.4 88.7 93.9
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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