Buying back Masteel on Weakness as Results are actually in excellent order, By Calvin Tan Research

Hi guys,

I went through Masteel last quarter results again and I noticed that Masteel is doing fine.

These are my findings:

 

The Top Reasons to take another look at Masteel – The Master of All Long Steel Players.

 

1) Although Masteel made a mere 1.67 sen profit this quarter it actually made more than 4 sen this quarter. How come? The 2.4 cts loss was due to foreign currency exchange loss which is one off and not recurring.  So Masteel has a forward P/E of less than 5 on the strength of its improved earnings (Of course some might dispute the figures since there is a Rm6.4 million forex loss this quarter.

 

2) Same scenario was experienced by Southern Steel on its August 22, 2016 report. On that day SS reported a loss of  26.86 sen. And Calvin Tan Research  commented it was a one off event  (due to write off impairment of Rm140 millions) If not Southern Steel should register a gross profit of Rm89 millions.

As subsequent results showed that SS has improved tremendously after the one off impairment.

So I think Masteel should show great improvements (as the forex loss is also a one off event)

 

3) A CLOSER LOOK AT MASTEEL ACCOUNTS ACTUALLY SHOW GOOD IMPROVEMENTS

These are the positive signs:

a) Cash position has increased by almost Rm50 millions

b) NTA has further strengthened from Rm2.17 to Rm2.26.

At 78 sen closing price now Masteel is selling at a Whopping 64% Discount to NTA – providing a Big Margin of Safety.

 

 

3) The Roll Out of Rm2.7 Billions MRT JOBS  should give a booster for Masteel’s rebar steel as Masteel is a pure long steel player. As such its long steel products should benefit the most from heavy infrar works like MRT Pillars, MRT Plat Forms, Overhead Bridges. It should also benefit from the Pan Borneo Highway Construction.

 

4) With the recurring fog & smog in Major Chinese Cities – The Beijing Govt is calling for a ban on polluting iron & steel factories. So there will be a curtailing of rampant runaway overproduction of inferior steel from China. This means that there will be less dumping of cheap steel in Malaysia. This augurs well for the strenthening of steel prices in Malaysia.

 

 

5) IRON ORE PRICES REBOUNDING BY MORE THAN 50%

As Iron Ore prices have increased Steel Prices will also go up in tandem.

See

IRON ORE

88.04

 USD 

0.53

 

(0.60%)
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6) WEAK RINGGIT MEANS MORE EXPENSIVE CHINA STEEL IMPORTS

With the Crash of Ringgit from Rm3.50 to Rm4.45 – All imports including all Steel from China now look unfeasible. And Malaysia with the Collapse of Ringgit Now Becomes Super Competitive on World Markets.

 

 

7) Masteel’s Management is sanguine on exports.

See extracts from Masteel reports:

Prospects

With the recovery of steel bar prices from an average of RM1,443 per MT in January 2016 to RM2,192 per MT in January 2017 which amounts to a price surge of 50%, this has enabled the Company to operate profitably and with more installed rebar rolling capacities becoming available this year, the revenue of the Company is expected to be improved upon in the coming quarters .

The persistently higher prices of raw materials for steelmaking such as iron ore, coking coal and scrap will ensure steel bars prices remain firm with an expected fluctuation within a narrow range of 10% for the next few months.

The Company expects to improve its sales volume to East Malaysia due to the mega infrastructure projects in the next 5 years. In addition, with the favorable exchange rate between RM and USD, the Company’s products will be exported to new customers in the Oceania countries.

 

 

8) TRUMP’S US1 TRILLION (Rm4.45 Trillions) INFRAR WORKS FOR USA WILL FURTHER BOOST IRON ORE & STEEL PRICES.

With creaking bridges, roads that look like kampung roads, airports that look worst than 3rd world’s – USA is in great need of a total overhaul of all its Infrarstructures. And Donald Trump has proposed a US1 Trilllion Budget for Infrar works troughout the US. This will spur demand for all hard commodities. So Steel prices are expected to spike further.

 

 

9) DURING THE 2006 to 2007 STEEL BULL RUN MASTEEL WENT UP IN TANDEM WITH ANJOO STEEL & SOUTHERN STEEL.

SO THIS ROUND ANNJOO HAS ALREADY RUN FAR AHEAD. SOUTHERN STEEL IS ALSO MOVING UP STRONGLY. SO MASTEEL THE LAGGARD IS EXPECTED TO RUN UP LIKEWISE. A RISING TIDE LIFTS ALL BOATS. SO MASTEEL IS EXPECTED TO RISE LIKE ANJOO & SOUTHERN STEEL (ALL 3 LONG STEEL PLAYERS)

 

10) MASTEEL WAS FIRST RECOMMENDED BY DR NEOH SOON KEAN IN HIS MONTHLY INVESTMENT DIGEST

Almost 10 years ago I have followed Grand Master Champion Sifu Dr Neoh of Dynaquest in his Monthly Digest. And Masteel is One of Dr. Neoh’s Stock Picks.

Many years have passed & Dr. Neoh is still holding firmly his Masteel Shares

Coming in at No. Top 12 is Dr. Neoh with 1.25 million Masteel Shares.

See

22 NEOH CHOO EE & COMPANY, SDN. BERHAD          1,250,000           0.512%

 

With Dr. Neoh’s foresght & guidance Countless Investors have reaped bountiful returns through the years of following Deep Value Investing in the Tradition of the Great Benjamin Graham.

 

Many Thanks & Many Happy Returns

 

Warmest regards,

 

Calvin Tan

Jurong, Singapore