Malaysia: CSC FY19-21 likely to gain from anti-dumping duties on GI products

15/03/2019 12:00 - 45 total view

Maintain sell with an unchanged target price (TP) of 83 sen: The Ministry of International Trade and Industry’s (Miti) decision to impose anti-dumping duties on imports of galvanised iron (GI) products at up to 16.13% is positive news for the domestic GI market. That said, the benefit to the domestic market and CSC Steel Holdings’ GI sales could be minimal. We make no changes to our forecasts and maintain our “sell” call at an unchanged TP of 83 sen based on financial year ending 2019 (FY19) price-earnings-ratio (PER) of 9.5 times (five-year mean).

Miti has decided to impose anti-dumping duties at up to 16.13% against GI products imported from China and Vietnam starting last Friday (March 8, 2019). The duties will be in effect for five years until March 7, 2024. The decision came after Miti concluded its investigation into alleged unfair trade practices that was initiated on Aug 25, 2018, following a petition pled by FIW Steel Sdn Bhd on behalf of the domestic industry. Imports from China and Vietnam are dumped into Malaysia at a price much lower than their domestic average selling prices (ASPs).

We posit this as positive news to the domestic GI market. We expect the duties to bring greater stability to domestic ASPs and improve the sales volume of local players in the domestic market on a potential reduction of GI imports. As it stands, GI imports have been on the rise. For instance, imports accounted for 51.7% of Malaysia’s total GI consumption in 2017, up from 39.7% in 2015. The increase resulted in a reduction of CSC’s market share to an estimated 26% in 2017 (from 36% in 2015).

That said, based on our channel check, the duty rate is insufficient to curb the dumping of certain GI products from China and Vietnam. The rate is also lower than the existing anti-dumping duties on pre-painted GI which range from 12% to 52% for five years. Therefore, we believe the positive impact of this recent move could only be minimal to the industry. GI accounted for 32% of CSC’s total production last year. Assuming the duty improves CSC’s GI sales by 1% above our base case, it would raise our financial year ending 2019 until 2021 (FY19-21) earnings by 9.7%-10.6%. We make no changes to our forecasts for now. CSC’s current 12-month forward PER of 12.2 times remains demanding. 
March 14, 2019
Source: The Edge Market