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Asia Pacific Materials:
Monthly Navigator
Focus on Stock-Specific
Catalysts and Valuation
MS Top Picks put up a good performance. Our top
picks for May: Posco (+13%), Maanshan (+18%) were
among the top performers, while Western Mining was
the worst performing (-20%). Performance for the sector
was flat (+1%) with almost equal number of gainers and
losers.
Steel, cement & forestry news flow remains good:
Steel pricing remains strong, in long products and
outside China, driven by robust demand and costs push
inflation. However, In China, we are beginning to see
government interventions with price controls for steel in
earthquake-affected region. We downgrade our Taiwan
Steel industry view to In-Line from Attractive following
our downgrade of China Steel. Chinese cement looks
positive, as the higher pricing is supported by positive
news flows on demand and supply. China forestry
sector looks good, with positive pricing trends and
upbeat outlook from Sino Forest.
We highlight our top ideas for June:
1) POSCO (O/W, PT W700,000): Management is more
upbeat on the prospect of a 3Q08 price increase and this
should drive stock performance in the coming months.
2) Dongkuk (O/W, PT W63,000): Dongkuk is benefiting
from the booming demand for shipping plates and
stronger pricing for long products.
3)SAIL (OW, PT Rs266): SAIL is our out-of-consensus
OW call. We believe that the Street has overstated the
negative impact of higher coking coal costs and has
underestimated the price hikes by SAIL YTD.
4) Lee & Man (OW, PT HK$25): Fall in wastepaper
prices and stronger containerboard prices would help to
improve margin and profitability at Lee and Man.
Going forward, we believe company-specific catalysts
will drive out-performance as the market focuses on
stocks’ fundamentals and valuation.
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