Featured Report: OSK On Southern Steel

As most are aware, Southern Steel announced its earnings last night. (ps: I did blogged on Southern Steel before. See A Very Brief Look At A Leading Steel Stock: Southern Steel and A Quick Look At Southern Steel And The Steel Sector )

This morning, I glanced at the stock price. It's opening trade was 1.82.

I chuckled.

I do have a reason.

Back in 2007, I remember Southern Steel and a report from HwangDBS.

Southern Steel was also trading around 1.82.

Note the header 'Sterling 1Q2007'.

This would be link to that earnings note: Quarterly rpt on consolidated results for the financial period ended 31/3/2007

Now as you would know Southern Steel reported its earnings last night. It lost some 12.6 million.

And as most are aware OSK was very bullish on steel since March. lol.. you know it when the report is filled with colour pictures.

Ah... 2 years ago, SSteel was 1.82, making money. Now it is also 1.82 but losing less money. I wondered what OSK would say.

Oh... as expected. Buy maintained. Target 2.12. Yeah, Southern Steel lost less money. lol.

(ps: they had a Sell Into Strength market strategy highlighted on the Edge Financial Daily recently. )

And I like what they wrote. lol

• The rich market liquidity is also prompting investors to switch their attention to high beta steel stocks, which justifies our BUY recommendation. We value the company based on 6x FY10 EPS and 0.91x FY10 NTA/share, and derive a 12-month target price of RM2.12.

Rich market liquidity? lol

Err.. how come volume nowadays pale in comparison to what we saw back in March-June 2009?

And they are basing their TP on FY10EPS.

The above screen shot showed what SSteel did so far.

In for first half 2009, SSteel lost some 78.15 million.

And guess what's OSK estimate earnings for SSteel in fy 2009?

Would you believe 47.5 million???

lol.

Now why is that figure incredible? For SSteel to have reach anywhere close to 47.5 million for fy2009 earnings, SSteel has to make 47.5 + 78.15 or 125.6 million for its remaining 2 quarters for fy2009. lol. Setting an extremely high expectations, eh?

And guess what's OSK expectations for SSteel in fy 2010?

Just a mere 158 million!!!

Well, if that's possible, for sure SSteel is selling at an extremely cheap valuation based on these incredibly high earnings forecasts!

How babe?

Wanna buy SSteel?

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lol... I decided to search for OSK previous write-up on SSteel and I found that they wrote on SSteel back in May 2009.



Incredible. Back then SSteel was at 1.63 and OSK gave it a buy rating with a TP of 1.93.

So SSteel lost less money and the stock is at 1.82.

Surely a TP of 1.93 would not be seductive for SSteel given the 'rich market liquidity'. No wonder the TP adjusted higher to 2.12.

lol.. lose less money means a higher TP.

Good reasoning eh?