Robust demand for steel and possible selling price hikes will continue to drive Masteel’s earnings. The company is on track to achieving earnings forecast of RM42.6 million or 29.2 sen per share this year, which represents a strong 30% year-on-year (y-o-y) growth. It has already made RM33 million in the first nine months of the year.
Earnings look set to continue expanding at a similar clip in 2008. We are estimating net profit of RM55.3 million or some 37.9 sen per share. That implies Masteel shares are trading at very attractive valuations - at P/E multiple of only 3.8 times compared to its estimated earnings growth of 30%.
The stock price is also well below Masteel’s net tangible assets of RM2.36 per share. Hence, we believe there is significant upside potential. The company is exploring options to raise liquidity including a bonus issue and/or private placements. This should make the stock more attractive to bigger investors including foreign funds.
