OSK Research says while the industry's poor outlook will persist, Perwaja Steel is building an iron pelletising plant that is expected to boost the profitability of its direct reduction plant.
KUALA LUMPUR: Despite a downgrade on its debt ratings by Malaysian Rating Corp, Perwaja Steel Sdn Bhd remains poised for growth due to the various economic transformation programmes (ETP) and its ongoing internal transformation efforts.
In its report, OSK Research said it remains upbeat on Perwaja Steel as equity, investors should instead keep a close eye on the ongoing transformation efforts implemented by the management.
"Given Perwaja's reported losses for two consecutive years plus the poor nine months ended September 2011 results thus far, the downgrade came as no surprise.
"We have highlighted in our recent updates that the basic fundamentals underlying steel mills in Malaysia remain weak, but various mega projects under the ETP may spur long steel demand despite execution risks," OSK said.
MARC last week lowered its rating on Perwaja Steel's RM400 million Murabahah medium-term notes programme from "AID" to "A-ID".
The rating affected RM160 million of outstanding debt notes under the programme while the outlook on the rating was "negative".
OSK said while the industry's poor outlook will persist, Perwaja Steel is building an iron pelletising plant that is expected to boost the profitability of its direct reduction plant.
This would allow it to meet its own iron ore pellet needs, which are currently procured at a hefty premium to iron ore fine.
It added that the commissioning of the pelletisation and concentration plant in 2012 is likely to translate into significant cost saving of up to US$50 a tonne for its upstream material.
OSK Research has recommended a "buy" call on Perwaja Steel.
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