Sino Hua-An ... May 09

The recovery in the demand for steel in China may benefit Sino Hua-An, which produces metallurgical coke in China. Sino Hua-An is the only Chinese company listed in Bursa. Its direct exposure to China’s steel industry will benefit from the infrastructure boom under the Chinese government’s rm2 trillion, two year stimulus programme.

The company is principally involved in the production of metallurgical coke and its by product such as tar, crude benzene, ammonium sulphate and coal gas. MMetallurgical coke, made from low sulphur bituminous coal, is a critical raw material used as an energy source for the smelting of iron ore in the manufacturing of steel.

It recently upgraded its plant and equipment to comply with China’s ongoing efforts to curb pollution, will meet any demand uptick.

China’s mammoth stimulus package has been the main catalysts for steel millers to resume operations and start replenishing their depleted inventory. AS the stimulus package would revive construction activities, steel demand may surprise on the upside, thus directly benefiting coke producers.

It is currently in a net cash position, with a cash reserve of RM28 million as at Dec 31, 2008, and has no debts. Meanwhile, its management indicated that there will be no major capital expenditure over the new few years. Thus, there is a possibility that the company may distribute more surplus cash as dividends going forward.

However, some of the key risk for Sino Hua-An. For instances, an increase in china’s export tariff for the steel will hurt steel production and hence, demand for coke. Meanwhile, a higher that expected coal price will erode coke producers’ margins.

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