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Company Update � Choo Bee (ADD, downgrade)
- Positives well- reflected While the potential for pipe replacement in Malaysia is huge and imminent given the high non-water revenue (2010: 36.4%), Choo Bee would not be the immediate beneficiary as the group does not manufacture large diameter ductile pipes or mild steel pipes. As 65% of group�s revenue is derived from its trading business, which mainly trades construction steel products, demand will be fuelled by construction activities. We expect the local construction sector growth to remain buoyant, growing at 4.1% yoy, from 3.7% in 2013. As such, we have raised our trading growth assumption to 10% (from 5% previously) for 2014E- 2016E respectively, which resulted to a 6.6% � 8.0% increase in our 2014E-2016E EPS assumptions. Given the earnings upgrade, we have also raised our target price to RM2.05, as we roll over our valuation horizon to 2015, but still ascribing a 10x PER, which is based on the local steel industry average. Given the minimal upside, we downgrade Choo Bee to ADD.
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| For important disclosures, please refer to the Disclosure section at the end of the individual linked research reports. |
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