Table of Contents

1.0 Company Synopsis............................................................................................................... 2 1.1 Company History .................................................................................................................. 2 1.2 Company Performance .......................................................................................................... 3 1.3 Investment Decision .............................................................................................................. 4 2.0 Ratio Analysis ...................................................................................................................... 5

Current ratio- ............................................................................................................................... 5 Quick ratio- ................................................................................................................................. 5 Leverage Ratios ........................................................................................................................... 5 Debt Ratio- .................................................................................................................................. 5 Debt to equity ratio- .................................................................................................................... 6 Activity ratio ............................................................................................................................... 6 Inventory turnover ratio (Average inventory)-............................................................................ 6 Debtors turnover- ........................................................................................................................ 6 Net assets turnover- ..................................................................................................................... 6 Total assets turnover- .................................................................................................................. 6 Gross profit margin- .................................................................................................................... 7 Net profit margin-........................................................................................................................ 7 Return on investment- ................................................................................................................. 7 Return on equity- ......................................................................................................................... 7 3.0 4.0 Detailed Analysis ................................................................................................................. 8 References .......................................................................................................................... 14

1.0 Company Synopsis

The company chosen by us is CSC Steel in a giant in manufacturing industry and has operation in multiple companies. We have also tried to compare it with other steel industry competitors.

1.1 Company History

CSC Steel Holdings Berhad Fomerly known as Ornasteel Holdings Berhad is a subsidiary of China Steel Corporation was incorporated in Malaysia on 20 January 2004. CSC is among the leaders of the Steel Industry of Malaysia. It is an ISO 14001:2004 certified and is registered within BM TRADA Certificate Scheme with annual turnover of 1,372,850,318 RM (Audited Accounts 2008). CSC has a product portfolio of hot rolled pickled & oiled steel, cold rolled steel, hot-dipped galvanized steel and pre-painted galvanized steel. CSC is the Malaysias largest cold rolled producer by production size. The productions capacity is 500,000 tpy of cold rolled steel, 240,000 tpy of hot-dipped galvanized steel, and 120,000 tpy of pre-painted galvanized steel (according to South East Asia Iron and Steel Institute SEAISI). CSC Steel is a registered member of Malaysian Iron and Steel Industry Federation (MISIF). With 180 employees (Source: MISIF website) it is exporting products to more than fifteen countries some of them are USA, Canada, Italy, West Germany, England, Brazil, Mexico, Saudi Arabia, UAE, Kuwait, China, Australia, new Zealand, Bangladesh, Taiwan, Thailand, Vietnam, Philippines, Indonesia etc. Along with heavy production and being market leader in cut throat competition CSC is also actively involved in CSR activities. They understand their social responsibility and continuously come up with various initiatives and investments in CSR activities. Any steel products or steel manufacturing company has to maintain a high quality standard as per the industry standard or as per the customer requirements. Quality control system of CSC steel includes various checks at various steps of the entire production process, such as hardness test, tensile strength test, surface condition test, bending test and colour difference test, which are used for monitoring and improving the quality of steel products. CSC Steel Sdn Bhd and Group Steel have obtained ISO 9001:2000 certifications for their quality management system since 2003.

CSC Steel has been active in corporate social initiatives also; let us take a look at its work in corporate social initiatives. Every company has an inherent responsibility to protect environment. It is a saying that you should take only that much from nature as you need and return it back too. CSC follows this and continuously encourages and makes aware their employees to protect

environment. CSC has always helps underprivileged. They are active in corporate social responsibilities. Whatever they are earning from people some part of it is returned back for societies welfare.

1.2 Company Performance

One of the best performing companies in Malaysian steel industry. If you want to invest in this company this is the right time, the companys management has performed overwhelmingly successfully and have never lost money for their shareholders. Secondly the steel industry of entire world is again booming after a dip in slowdown again the sector is coming up in developing nations and thus keeping a boom in entire world. In terms of revenue, EBITA, Pat, EPS the company has lost but the company was still able to give dividends and thus was able to make positive sentiments and a growth plan of expansion with new factories coming up the combination is lethal for motivating investors to invest in this company. The downward effects in companys books is because of hit of overall steel industry but now as the economies are coming out of recessionary motion so is steel industry and CSC steel had been successfully able to maintain positive PAT in recessionary time also. Companys 2011 performance numbers are as below (taken form companys website) Revenue: 609 RM million Earnings before Interest Tax Depreciation and Amortization (EBITDA): 56 RM million Profit after Tax (PAT): 30 RM million Earnings per Share (EPS): 8.14 sen/share Net Asset per Share: 2.07 RM/share Dividend: 13 sen/share

1.3 Investment Decision

At present although the CSC Steels profits have gone down but still its is among the best suited companies among competitors to invest in. according to our analysis it is better to invest for long term in this company as the dividends and expected long term scenario of steels industry hints for long term investment. Some of the other facts are as below Company is now in net cash position of 280 million. Much stronger even after so many dividend had been paid out for past years Expansion of a rolling mill in 2007 to increase capacity and also to produce higher grade CRC with loan of 36 million had been fully paid up in 2010. From 2011, 9 million ringgit extra spare cash is available for dividend payment if the company continues its generosity. Another 2 sen additional if all 9 million is fully paid as dividend. Inventories will never obsolete or outdated, therefore inventories value is accurate. The company never lost money in any financial year. This proves that the management is extremely good.
2005 REVENUE EBITA PAT EPS NTA DPS NET DPS DPS % 1.24 B 109 M 80 M 20.97 1.53 5 3.75 23.84 2006 1.025 B 112 M 72 M 18.97 1.69 10 7.3 52.71 2007 1.302 B 131 M 80 M 21.15 1.83 12 8.88 56.74 2008 1.373 B 92 M 59 M 15.66 1.85 8.5 6.31 54.28 2009 0.87 B 149 M 91 M 24.42 2.09 20 15.25 81.90 2010 1.035 B 127 M 69 M 18.54 2.12 13 13 70.12

2.0 Ratio Analysis

Ratios Current Ratio Quick ratio Debt ratio Debt to equity ratio Inventory turnover ratio (Average inventory) Debtors turnover Net assets turnover Total assets turnover Gross profit margin Net Profit margin Return on investment Return on equity 2007 8.11 4.31 0.15 0.086 5.53 12.02 3.35 1.56 9.06% 6.11% 9.56% 11.55% 2008 9.01 5.76 0.026 0.028 7.06 20.26 1.86 1.756 8.14% 4.28% 7.5% 8.48% 2009 12.67 9.81 5.54 10.96 1.05 1.00 14.30% 10.47% 10.54% 11.70% 2010 11.32 8.9 6.04 12.34 1.63 1.15 13.85% 12.76% 9.56% 11.67%

Current ratioThe current ratio is a measure of the firms short-term solvency. It indicates the availability of current assets to meet the current liability. A ratio of greater than one means that the firm has more current assets than current claims against them.
The current ratio of CSC Steel Holdings is very high and it stands at 12.67 for the year 2009. This point towards high degree of liquidity and high liquidity is also not good for the company because idle assets earn nothing.

Quick ratioQuick ratio also known as acid test ratio, establishes a relationship between quick or liquid assets and current liabilities. Generally a quick ratio of 1 to 1 is considered to be satisfactory. In case of CSC Steel Holdings the quick ratio is 9.81 for the financial year 2009. The firm is highly liquid.

Leverage Ratios
Long term creditors like debenture holders, financial institutions etc are more concerned with the firms long term financial strength.

Debt RatioNil

Debt to equity ratioNil

Activity ratio
The activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets.

Inventory turnover ratio (Average inventory)Inventory turnover indicates the efficiency of the firm in producing and selling its products. The inventory turnover shows how rapidly the inventory into receivables through sales. Generally a high inventory turnover is indicative of good inventory management. In case of CSC Steel Holdings the inventory turnover ratio has reduced in 2009 as compared to the 2008. The inventory turnover ratio for the year 2009 is 5.54. A low inventory turnover implies excessive inventory levels than warranted by production and sales activities or slow moving inventory.

Debtors turnoverDebtors turnover ratio indicate how many times debtors turnover each year. Generally higher the debtors turnover the more efficient is the management of credit. In case of CSC Steel Holdings the debtors turnover ratio for the year 2009 is 10.96. This means that CSC Steel Holdings is able to turnover its debtors 10.96 times in a year. In other words its debtors remain outstanding for 12months/10.96 = 1 month approx.

Net assets turnoverThe Net assets turnover of 1.05 for the year 2009 implies that CSC Steel Holdings is producing RM 1.05 of sales for one RM of capital employed in net assets.

Total assets turnoverThis ratio shows the firms ability in generating sales from all financial resources committed to total assets. The total asset turnover of 1 times implies that CSC Steel Holdings generates a sale of RM 1 for one RM investment in fixed and current assets together.

Gross profit marginThe gross profit margin reflects the efficiency with which management produces each unit of product. A high gross profit margin ratio is a sign of good management. The gross profit margin for CSC Steel Holdings has increased considerably in the year 2009 to 14.30% in the year 2009.

Net profit marginThe net profit margin indicates the firms capacity to withstand adverse economic conditions.
In case of CSC Steel Holdings the net profit margin for the year 2009 is 14.30%.

Return on investmentThe ROI for CSC Steel Holdings stands at 10.54% which a good sign for the investors.

Return on equityROE indicates how well the firm has used the resources of the owners. In case of CSC Steel Holdings the ROE has improved considerably over a period of 3 years and it stands at 11.70% for the academic year 2009.

3.0 Detailed Analysis

In Order to do the valuation of the stock of the CSC steels, I am going to follow the method of Dividend discount model. Dividend discount model is one of widely accepted model in order to do the valuation of the stock. In this method we estimate the future dividend based on the past information on the dividend policy of the company. Then we discount all the future cash flow in terms of the dividend to the common shareholder. The future cash flow of the dividend will be calculated the on the basis of two factors i.e. profit after tax of the company in the last five year and dividend declared by the company in the last five years. Based on this we would be able to calculate the average growth in the dividend by the company on year to year basis. Below is the graph representing the dividend declared by the company in the last five years from year 2005 to 2010.

In the dividend discount method all the future dividends are discounted at the risk free rate of the country. The value of the stock is calculated from the formula Value of the Stock = Dividend per share Discount rate Dividend growth rate

Here the dividend is calculated as 13 The Discount rate at which all the dividends would be discounted is taken as 4.7% which is the risk free rate of the country The dividend growth rate is calculated as 4.50% With the help of above formula the intrinsic value of the share comes out to be 1.56 Malaysian Ringgit. However the current price of the stock is 1.75 Malaysian Ringgit. Hence, we can say that the stock is overvalued in the market and there is possibility that the price of the share of CSC steel will fall down. Hence the stock should be sold. Dividend/Share (in sen/share) Year 2005 2006 2007 2008 2009 2010 Divident 5 10 12 8.5 20 13

Appendix A
Current Ratio
Current Ratio = Current Liabilities Current Asset Analysis: It measure the short term solvency of PZ Cussons, it indicates that the ratio of current assets to current liability in pound terms.

Current Ratio
Current Asset - Inventory Quick Ratio = Current Liabilities Quick ratio is the ratio between current assets and current liability excluding Inventory. So this is the ratio of the current assets of the company which could be readily available in cash for meeting their dues to the creditors. The quick ratio of 1:1 is considered as excellent for a company but it depends upon the nature of company and also its reputation among the suppliers and in market.

Cash Ratio
Current Asset - Inventory Cash Ratio = Current meet its It measures the ability of the company toLiabilities short term liability by using its most liquid assets. It excludes receivables because the company can suffer from lower quantity of funds if it has slow paying debtor, and it spoil business relation if company put too much pressure for early realizing of receivables.

Capital Turnover
Capital Turnover = Annual Sales Invested Capital

Capital turnover ratio is used by the companies in order to determine the rate of return on the capital invested in the firm in order to run the business.

Net Operating Cycle

Days of Inventory outstanding+ Days of sales outstanding + Days of payable outstanding

Net Operating Cycle = =

It is the average time period between buying inventory and receiving cash proceeds from its eventual sale. It is determined by adding the number of days for which the inventory is held and the collection period for accounts receivable.

Gross Profit Margin

Gross Profit Margin = Gross Profit Revenue Gross profit margin is a financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings. Higher the ratio better it is for the firm as the amount of profit is increasing in the revenue generated by the firm.

Operating Profit Margin

Operating Profit Margin = Operating Profit Revenue Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt. Also known as "operating profit margin" or "net profit margin".

Net Profit Margin

Net Profit Margin = PAT Revenue

The profit margin tells you how much profit a company makes for every 1 it generates in revenue or sales. Profit margins vary by industry, but all else being equal, the higher a company's profit margin compared to its competitors, the better.

Return on Equity
Return on Equity = PAT Shareholders Equity

The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

Return on Capital Employed

Return on Capital Employed = = EBIT Capital Employed

It is a ratio that indicates the efficiency and profitability of a company's capital investments. Here the company is able to able to make a consistent growth in return on capital employed, which is a good indication for the firm.

Return on Total Asset

EBIT Total Net Assets

Return on Total Assets =

It is a ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid.

Earnings per Share

Earnings per Share = Net Income Dividend on preferred Stock Average Outstanding Shares

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability.

PE Ratio
Market value per Share Price to Earning = Earnings per Share

EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates of the next two quarters.

PEG Ratio
PEG Ratio = Price/Earnings ratio Annual EPS Growth

PEG is a widely used indicator of a stock's potential value. It is favored by many over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued.

EPS Growth Rate

Earnings per share (EPS) Growth Rate ratio, is expressed as a percentage and it shows the relative growth of EPS over the last two reporting periods. A minus sign indicates negative growth from last year. If the previous year's EPS-basic is zero earnings per share growth rate is not defined.

Dividend Cover
Dividend Cover = EPS

DPS Dividend cover shows how many times over the profits could have paid the dividend. For example, if the dividend cover is 3, this means that the firm's profit attributable to shareholders was three times the amount of dividend paid out.

Yield
The income return on an investment is yield. This refers to the interest or dividends received from a security and are usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.

4.0 References

1. Corporate Highlights Report by RHB Research (18 August, 2009), Institute Sdn Bhd, A member of the RHB Banking Group dated. 2. CSC Steel Holdings BHD, for three quarter results of 2009 and yearly financial consolidated result of 2008, website referred http://www.cscmalaysia.com/index.asp 3. CSC Steel Holdings company profile report (19th Jan 2010),

http://goliath.ecnext.com/coms2/product-compint-0000941769-page.html dated. 4. Equity Research reports in Insider Asia by Asia Analytica published (18 August, 2009); 16 Nov, 2009. 5. Malaysian Iron & Steel Industry Federation (MISIF) official website

http://www.misif.org.my/index.php?navi_id=29 6. Marketing Management Book Chapter two, Developing Marketing Strategies and Plans, by Philip Kotler, Kevin Lane Keller, Abraham Koshy and Mithileshwar Jha; thirteenth edition.