Analysing cyclical companies - MASTEEL

Steel is a cyclical commodity making steel companies cyclcial. According to Damodaran, looking at the current performance of cyclcial companies can lead to wrong picture. Instead we should analyse and value cyclical companies based on its performance over the cycle.

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MASTEEL is a Bursa Malaysia steel company and over the past 14 years (covering at least 2 steel price cycles), its ROE was an average of 2%. You may think that this is terrible until you look at the sector performance.

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The following chart is taken from my article https://www.i4value.asia/2021/10/a-tough-12-years-for-bursa-malaysia.html#more

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It shows the ROE of the Bursa steel companies. You can see that for many years, the sector had negative ROE. Over the past 14 years, the mean ROE for the sector was an average of negative 1%.

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So when you compare the sector ROE with that of MASTEEL, you would conclude that MASTEEL should be one of your shortlisted companies for further investigation.