KUALA LUMPUR (June 2): MIDF Research has maintained its Sell rating on Kinsteel Bhd at 17 sen and slashed its target price (TP) to 9 sen (from 16) and said further write downs of inventory and assets in Kinsteel’s unit, Perwaja continues to widen the company’s losses.
In a note today, analyst Kelvin Ong of MIDF Research said that the company’s cumulative losses were wider than he had expected.
“This was largely due to abovementioned write downs in Perwaja’s inventory and assets. If the write downs were excluded, net losses would have been lower for the latest quarter,” he said.
Ong said that the company has also yet to provide any updates on its current restructuring exercise to uplift Perwaja’s PN17 status. He added the company would need to secure additional capital to carry on its business operations and this would be a big hurdle for the group.
In addition, Ong said that the steel industry continues to be laden with weak steel prices due to dumping of cheaper steel products by China mills.
“Dumping of cheaper steel products by China mills has caused softening prices of steel products especially steel bars and wire rods. The global overcapacity situation particularly in China is likely to impact steel product prices as production continues to outpace demand.”
Ong maintained his “sell” recommendation on Kinsteel in view of the company’s weak fundamentals and global steel overcapacity.
“We maintain our “sell” call on Kinsteel with a lower TP of 9 sen by ascribing a price/book multiple of 0.5 times on our book value per share (BVPS) forecast. This is in view of the weak fundamentals of the company while steel prices are likely to remain weak due to global overcapacity,” concluded Ong.
At 9:31 am today, Kinsteel was down 1 sen to 16 sen with 35,000 shares traded.
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