Big rise in earnings seen for g steel

Globlex Securities has increased its 2008 earnings estimate for G Steel 15.7 per cent to Bt3.02 billion, a 57-per-cent year-on-year rise.

The revised estimate is based on sales revenue for G Steel of Bt33.43 billion, a normalised profit of Bt2.32 billion and a foreign-exchange gain of Bt700 million, the broker said.

The broker has raised G Steel's fair-value price from Bt1.21 a share to Bt1.61 and recommended "buy".

G Steel is the country's second-largest hot-rolled-steel producer, with annual installed capacity of 3.4 million tonnes. The company will emerge as Asia's largest hot-rolled-steel producer, with annual capacity of 5 million tonnes, following its merger with Nakornthai Strip Mill (NSM), of which G Steel owns 49 per cent and which is expected to be completed in the second quarter.

G Steel's share price has increased 101 per cent from 77 satang at the market close on April 1. The Thai stock market yesterday rose to a six-month high of 884.19 points, up 1.19 per cent from Tuesday's close, led by energy and steel companies on expectations that rising prices would boost earnings.

The broker said the hot-rolled price in the Commonwealth of Independent States' steel market earlier reached a record high of US$970 (Bt30,800) per tonne, up 51 per cent from the beginning of the year and 71 per cent year on year.

The high price can be attributed to strong demand from the construction sector and a slowdown in steel exports from China.

G Steel's first-quarter net profit surged 186 per cent year on year, from Bt521 million to Bt1.49 billion. The robust quarterly earnings were attributed to a Bt757-million foreign-exchange gain, a 31-per-cent year-on-year rise in the steel price to Bt25 a kilogram, a 7-per cent year-on-year increase in sales volume to 300,000 tonnes, its quarterly gross margin rising to 10.3 per cent and a higher contribution from NSM.

A DBS Vickers Securities analyst said it had raised its earnings forecasts for G Steel for this year and next 53 per cent and 36 per cent to Bt3.45 billion and Bt2.88 billion, respectively, after the steelmaker reported a higher-than-expected net profit in this year's first quarter.

The broker upgraded its fair-value price to Bt1.66 a share, or 8.5 times G Steel's 2008 price-to-earnings ratio. It recommends "buy" for G Steel shares.

Solid second-quarter earnings are expected to be seen on the back of the increase in hot-rolled-steel prices. The broker predicts the domestic price will jump to Bt37.50 a kilogram in the second half of this month.

Seamico Securities said it had raised its normalised-profit forecast for G Steel for this year to Bt2.1 billion, double last year's figure.

It also revised G Steel's fair-value price to Bt1.61 a share but recommends "speculative buy".

The Internal Trade Department's suggested steel-price increase from Bt30.50 a kilogram to Bt35.50 this month will give a big boost to G Steel's second-quarter earnings, the broker said.

An Ayudhya Securities analyst said reports that the Commerce Ministry would extend for another five years the anti-dumping measures for hot-rolled steel from 14 countries, which expire next Monday, would benefit local steel producers.

A Siam City Securities analyst said the possible extension of anti-dumping measures would not have a significant effect on steel stocks, because the foreign steel price exceeds the local fixed price by about Bt35 a kilogram.

"This factor will not benefit steelmakers. Anyway, the steel-price rise could actually be a blessing," the analyst said.