Steel

Already survives record low. Many companies' profit to return Neutral

Steel

Positive signals from increased steel price and growing domestic demand

The steel price in the global market has increased continuously since late-

2012 due to China's economic recovery (GDP announced higher than

expected and the increased industrial production figures). For Thai steel

price, it has increased more slowly due to cheap steel imported from

China. However, the government sector has given a hand by collecting AD

tax at 14.28-19.47percent from China's boron-added steel since last December,

as other measures might be launched in the future. Accordingly, the

domestic steel price would be boosted this year. In terms of Thai steel

industry in 2013, the demand is projected to increase not less than 5%

YoY to 17.6 million tons as a result of the government sector's march

toward public utility system development and constantly increasing car

production.

Already survives record low, many companies' profit to return in 2013

The financial results of Thai steel companies should have already survived

the record low in 2012. Although the big steel company like SSI might face

net loss once again in 2013, it is projected to decrease significantly

(compared with 2012) due to the pressure toward the company that has

eased substantially after capital raising, extension of debt payment due

date, the smelting plant in the UK that it is projected to reach the breakeven

point this 3Q13. In terms of TSTH and BSBM, their profit is projected

to return once again this year after suffering loss in 2012. For TMT and

SMIT (downstream industries), their profit tends to improve along with the

growth of those industries relevant to steel such as construction and

automotive industries. In addition, MCS's obvious recovery of earnings

result is projected to be seen due to pre-orders that have increased until

mid-2014.

Upgrade to "Neutral", choosing MCS and SMIT as top picks

According to severe loss in 2012, the return of most steel stocks has

underperformed the market. Nevertheless, steel stocks are likely to bring

about satisfying return this year due to THB appreciation which benefits

steel companies' import of raw materials and the government sector's

policy to prevent Chinese steel from taking up the market. Accordingly, we

upgrade our recommendation for the steel sector from "Underweight" to

"Neutral", choosing MCS (FV@B7.96) and SMIT (FV@B5.42) as top picks of

the steel sector.