OSK's Recommendation On Perwaja Holdings

Was reading the following passage from OSK's Steel sector update today.

• Certainly more clarity for steel industry. Other than the positive financial impact for iron makers, we think the settlement of new benchmark prices represents an important milestone for the steel industry as it offers a clearer direction for steel prices a year ahead. The market has been volatile of late as there have been many rumours on the quantum of drop in iron ore and coking coal prices. The settlement will provide some degree of comfort to the industry players in committing their future orders. Although we prefer to take a prudent stance in our earnings estimates for Lion Industries’ HBI plant at Labuan and Perwaja’s DRI plant in Kemaman despite the latest development, our quick back-ofenvelop calculation reveals that every 10% additional reduction in iron ore pellet price may improve a company’s bottom-line for FY10 by approximately RM42m and RM63m respectively, with other key assumptions remaining constant. Considering that Perwaja is currently trading above our original target price, we have decided to factor in the potential earnings enhancement to our new fair value of RM1.67 and upgrade our recommendation to TRADING BUY...

Now on the 15th May 2009, OSK released a long report on the steel sector. On page 31, it had a SELL recommendation on it. It wrote the following.

Now on the 18th May, Perwaja announced it lost some 56.1 million.

OSK wrote the following.

• While Perwaja’s 1Q net loss of RM56.4m exceeded our full year net loss estimate of RM41.7m and consensus’ net profit of RM16.5m, this did not surprise us as we had already cautioned of potential losses for a quarter or two in our last sector update.

So.... the loss exceeded their full year loss estimate. ie. Perwaja did worse than expected! Some call it under performed. :p

But since Perwaja had already fallen to 1.11, OSK decided to upgrade it from SELL to Neutral and gave it a target price of 1.11.

So what do you reckon I was thinking when I read that passage from OSK today? Let me repeat again...

• Considering that Perwaja is currently trading above our original target price, we have decided to factor in the potential earnings enhancement to our new fair value of RM1.67 and upgrade our recommendation to TRADING BUY...

LOL!

And just like this... Perwaja's fair value has been upgraded to rm1.67!

Yeah.. it's a TRADING BUY!

ROFLMAO!

ps. here is a snapshot of Perwaja's latest balance sheet.

And here is a screenshot of Perwaja's stock chart.

How now my dearest Brown Cow?

Money for nothing and steel stocks for free?

LOL! :p2

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ps.. do not forget I know nothing. :D