It is reported that CSC Steel Bhd is likely to record a net loss of about MYR 10 million to MYR 15 million in the upcoming four quarter results due to narrowing margins as well as write down in inventory value.

RHB Research Institute Sdn Bhd stated in its research report that "Thus, the company is likely to increase its exports amid weaker domestic sales."

The report noted that CSC was trying to increase its exports to the Southeast Asia region in order to better utilize its plant's spare capacity. Currently, 15% of its sales was contributed by exports in the third quarter of 2011 as compared to the 6% in 2010. This had helped the company maintain its approximately 70% plant utilization rate.

RHB Research also highlighted that the price spread between input hot rolled coils and output, cold rolled coils had been narrowing since early last year. This had reflected a weak demand in the flat steel segment which the research house believed would severely impact the profitability of CSC in 2011, with declining net profit every quarter.

It added that "Thus we believe that the company would need to write down its inventory value as following the decline in prices of the HRC and CRC."

The research house also addressed a possibility of CSC being taken priven, given that the company had a huge cash reserve of MYR 213.5 million. Based on the last traded share price of MYR 1.41 per share, RHB Research said the controlling shareholder would only be required to spend about MYR 295 million to buy out all minority shareholders.

The report added that "This amount could be funding substantially with the company's cash reserve."

RHB Research noted that the possibility of privatization was boosted by the rumor that CSC's parent company was looking to acquire a stake in the Lion Group's steel making business.

It believed that the two stories jive as privatization of CSC Steel would make it easier for the parent company to fully integrate the downstream business of CSC Steel with the upstream business of Megasteel Sdn Bhd in order to derive synergies. The research house went on to peg a fair value of MYR 1.66 per share for CSC as it cut financial year 2012 net profits forecast by two to 39% to reflect the potential write down in inventory value as well as the narrowing spread between HRC and CRC.

(Sourced from www.theborneopost.com)