Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

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Equity Bottom-Up

We are reinitiating coverage on <a href="https://www.smartkarma.com/entities/962" target="_blank" data-smartkarma-citation="entities:962:1">China Steel Corp (2002 TT)</a>, or CSC, the largest steelmaker in Taiwan, with no-moat and stable moat trend ratings, along with a fair value estimate of TWD 13.30. Our fair value estimate implies a P/E ratio of 13.6 times and an enterprise value/EBITDA ratio of 7.3 times in 2017. CSC dominates the Taiwan domestic steel market with more than 50% market share, and it supplies around 65% of its steel production locally, while the remainder (35%) is exported, mainly to other Asian countries.We expect the antidumping duty and potential government infrastructure spending could provide some support for CSC in the domestic Taiwan market. However, we expect these to be outweighed by the impact of a weak steel demand environment, global overcapacity, and falling raw material prices, resulting in low pricing power and the tightening of its steel operating margins in the next few years. We expect the steel sector to remain competitive, given its highly fragmented and commoditized nature. Following the completion of its expansion plans, mainly Dragon Steel in 2013, we expect the company to remain cautious on its capital expenditure and investment spending, especially in the steel business, including its investments in Formosa Ha Tinh Steel in Vietnam.As for its more stable nonsteel businesses (around 20% of revenue), we expect it to continue to generate stable operating margins of around 6%-7% during our five-year explicit forecast period. This could provide some cushion to the firm's profitability.Analyst: Ken Foong

We are reinitiating coverage on China Steel Corp (2002 TT), or CSC, the largest steelmaker in Taiwan, with no-moat and stable moat trend ratings, along with a fair value estimate of TWD 13.30. Our fair value estimate implies a P/E ratio of 13.6 times and an enterprise value/EBITDA ratio of 7.3 times in 2017. CSC dominates the Taiwan domestic steel market with more than 50% market share, and it supplies around 65% of its steel production locally, while the remainder (35%) is exported, mainly to other Asian countries.We expect the antidumping duty and potential government infrastructure spending could provide some support for CSC in the domestic Taiwan market. However, we expect these to be outweighed by the impact of a weak steel demand environment, global overcapacity, and falling raw material prices, resulting in low pricing power and the tightening of its steel operating margins in the next few years. We expect the steel sector to remain competitive, given its highly fragmented and commoditized nature. Following the completion of its expansion plans, mainly Dragon Steel in 2013, we expect the company to remain cautious on its capital expenditure and investment spending, especially in the steel business, including its investments in Formosa Ha Tinh Steel in Vietnam.As for its more stable nonsteel businesses (around 20% of revenue), we expect it to continue to generate stable operating margins of around 6%-7% during our five-year explicit forecast period. This could provide some cushion to the firm's profitability.Analyst: Ken Foong

Reinitiating Coverage of China Steel With No-Moat, Stable Trend Ratings, FVE of TWD 13.30