CSCSTEL: Core Earnings Outperform on Cost Controls, Investment Bank Upgrades Recommendation
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM1.23 (+16.0%) |
| Last Traded | RM1.06 |
| Recommendation |
A prominent steel sector player’s core earnings for the first half of fiscal year 2025 (1HFY25) largely met analysts’ expectations, reaching RM27.6 million, or 54.6% of full-year projections. Despite a 9.3% year-on-year contraction in revenue, primarily due to subdued average selling prices (ASPs) across its steel product portfolio, sales tonnage saw a modest 3% improvement.
Profitability significantly benefited from lower input costs, which propelled core earnings to a substantial 72.4% increase compared to the previous year. However, on a quarter-on-quarter basis, adjusted net profit experienced a 13.7% decline, even as revenue rose by 10.6%, a trend attributed to higher operating expenses compressing margins. The company’s balance sheet remains robust, characterized by zero borrowings and a healthy net cash position of RM358.0 million.
Market Outlook and Challenges
Management maintains a cautious stance on near-term prospects, acknowledging a challenging environment. Global steel markets face oversupply concerns, muted Chinese demand, persistent US tariffs, and intensifying regional competition. Domestically, producers are contending with escalating operating costs, including higher electricity tariffs, the broader implementation of the Sales and Service Tax (SST), mandatory EPF contributions for foreign workers, and the gradual removal of fuel subsidies. These cost pressures are expected to translate into higher downstream prices, potentially impacting profit margins.
While government-introduced anti-dumping measures have offered some relief, the company stresses the ongoing need for stronger policy safeguards to ensure fair competition. Despite these headwinds, the investment bank has made no changes to its FY25-27F earnings projections.
Strategic Focus and Recommendation
Looking ahead, the company is prioritizing cost containment, agile inventory management, and sustainability-driven strategies to enhance resilience. TA Securities has reaffirmed its target price (TP) at RM1.23, based on an unchanged 9x CY26 EPS. Given the widened total upside potential exceeding 12%, the investment bank has upgraded its recommendation for the company from “Hold” to “Buy”.
