THAILAND'S G STEEL PLC (GSTEEL) 3Q06 EARNINGS HURT BY LOW SALES AND MAINTENANCE SHUTDOWN
November 16, 2006 Thursday

GSTEEL announced weak 3Q06 earnings of Bt187mn (EPS of Bt0.02). Excluding a one-time net loss from subsidiaries of Bt159mn, GSTEEL would have posted net profit of Bt347mn, down 35% qoq and 67% yoy and in line with forecast of Bt351mn. The company saw its 3Q06 sales volume fall 20% qoq and 15% yoy to 207,307 tonnes. This was due to slow steel demand as well as a temporary shutdown for maintenance.
Although average sales prices rose 10% qoq and 7% yoy to Bt19,323/tonne, 3Q06 revenue fell 13% qoq and 9 yoy to Bt4,006mn. Gross margins narrowed to 12.7% from 14.2% in 2Q06 as raw materials costs outpaced sales prices but was better than the 8.4% recorded in 3Q06. Sales and administrative expenses (GSTEEL only) were Bt146mn, up 7% qoq and 35% yoy from increased advertising and consulting fees. Interest expenses rose 6% qoq and 242% yoy to Bt128mn after the company issued debentures to fund capacity expansion.
Earnings in 4Q06 are expected to remain weak due to sluggish HRC prices following oversupply in the US. Another warning sign is the fall in HRC prices in China during the last 4 weeks from 4,150 Yuan/tonne to 4,043 Yuan/tonne. Earnings in 2007 should get support from an expected improvement in GDP growth, aided by lower oil and interest costs. A HOLD recommendation on GSTEEL is maintained with a target price of Bt1.4/share based on a 2007 PER of 9x.
(Kim Eng Securities (Thailand): 15 November 2006)