Steel prices continue to fall. Global steel prices have more than halved since peaking in Jul 08 due to a dramatic decline in demand. Producers such as ArcelorMittal and mills in China have cut back on production, hoping for de-stocking to run its path and waiting for recovery. Indeed, China's iron ore and carbon steel imports experienced a month-on-month increase for the first time in February this year since July last year. As China is a major player in the steel industry, its recovery is likely to boost steel prices. However with the still-murky global economic outlook and languishing US market whose auto industry is on the edge, having high expectations on the steel industry is asking too much from China.

Support from industry diversification. SSH services the oil and gas, marine and petrochemical industries. The industry diversification will help cushion underperformance in any one sector, such as shipbuilding which has seen minimal new order flow. Shiprepair, though not immune in a recession, is likely to be less affected given that ships typically have to come in for repairs every 2.5 years. On the oil and gas front, though the EIA forecasts lower oil demand this year, there are still companies such as PT Perusahaan Gas Negara (Persero) Tbk that expect to raise capital expenditure by 33% to US$200m this year. Finally, if SSH is able to increase its exposure to the infrastructure industry (one of the few sectors left in Singapore that is enjoying robust growth), the more support it will have during this recession.

Waiting for signs of a sustained recovery. Market sentiment has improved, but we note that economic indicators are pointing otherwise. As such, the recent rally in smaller-cap stocks is unlikely to be fundamentally driven, and signs of a sustained recovery have to be present before we turn more bullish on the stock.

Maintain HOLD. SSH has a good business model and its tripartite relationship with KS Energy and Aqua-Terra Supply should result in synergies and increased business opportunities compared to a stand-alone stockist. Though there are early signs that demand in China may be picking up, SSH's main industries still require a sustained recovery in other parts of the world. We maintain our HOLD rating and fair value estimate of S$0.11.