Oct 12, 2010

Higher KS valuation than Posco

Indonesia's largest steel maker PT Krakatau Steel (Persero) Tbk (KS) today announces the IPO price range, representing 9-11x of estimated 2011 P/E. 
A source familiar with the matter said Krakatau Steel might determine the price range between Rp800-Rp1,200 per share with estimated equity valuation of Rp11 trillion-Rp17.1 trillion.
If you look at estimated 2011 P/E of South Korea's largest steel manufacturer Posco, 3 folds larger than Krakatau Steel market capitalization, the IPO valuation of Krakatau Steel seems less attractive due to more expensive than Posco.
But, if you compared to its peers, Hyundai Steel, estimated at 12.06 folds P/E next year, Krakatau Steel valuation is lower than Hyundai Steel.
The problem is Krakatau Steel's net margin is tiny, but the company should face fiercest competitions from Chinese imported products. This generates a higher risk on Krakatau Steel.  
Disclosure: No position at the stock mentioned above.

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