EXECUTIVE SUMMARRY (OSK)
While we are not surprised at the recent improvement in the steel market and hold the view that real demand may only resume from 2HCY09, investors should not ignore the sector, which is now back on the right track. As governments around the world announce bigger and bigger stimulus packages, this supports our view that long steel demand may surprise on the upside. Nonetheless, the continuing drop in steel prices up to November ’08 has prompted a downgrade in our numbers, particularly for CY08. The potential knee-jerk reaction to the hefty inventory write-downs represents a good opportunity to accumulate value steel stocks at lip-smacking valuations, some at even below trough levels. We reiterate our OVERWEIGHT stance on the steel sector and keep our BUY recommendation on Lion Industries (TP: RM1.60), Southern Steel (TP: RM1.92), Kinsteel (TP:RM0.66) and Masteel (TP: RM1.00) while upgrading Perwaja (TP: RM0.90) to a Trading BUY on cost savings from lower natural gas prices and a potential cut in the iron ore benchmark but downgrade Ann Joo (TP: RM1.34) to NEUTRAL given the stock’s limited upside.