Leader Steel cautiously optimistic of achieving profits this year

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KUALA LUMPUR (May 8): Leader Steel Holdings Bhd is cautiously optimistic of achieving profits in year 2015 bearing in mind the uncertainty in the domestic and international steel market, according to its chairman Tan Sri Mohd Desa Pachi.

In his statement in Leader Steel’s (fundamental: 0.00; valuation: 0.90) 2014 annual report released today, Mohd Desa said that moving forward in 2015, the global steel demand recovery was expected to continue but with a growth stabilising at a lower rate and with continued volatility and uncertainty, leading to a challenging environment for steel companies.

He said apparent steel use in China was expected to experience slow growth with rapid cooling of the real estate sector as the government’s efforts to rebalance the economy curtails investment and weakens business sentiment.

However, he said the economies of Southeast Asia were experiencing increases in steel demand that outpaces the rate of economic growth generally.

Mohd Desa said the countries of Southeast Asia had become increasingly important regional steel consumers.

“From April 2015 onwards, the goods and services tax (GST) will start in Malaysia and will be one of the key highlights of the year.

“GST implementation will unavoidably push up the prices of goods and services, leading to higher cost-push inflation and would temporarily crimp consumer spending,” he said.  

Mohd Desa, however, said this would be temporary as businesses shall adjust to the new tax regime after 6 to 12 months.

He said Malaysia had a well-structured steel industry and was a leading global producer of steel.

However, he said local producers have to meet with increasing pressure from other markets in recent years, especially with a sharp uptick in Chinese output levels, in particular, leading to downwards pressure on prices and hence production volumes.

“Outlook for the Malaysia steel industry is therefore one of caution with production growth expected to be moderate over the next few years.

“However, in fourth quarter of 2014 the pressure on the government to raise import tariffs was finally paying with the Malaysia International Trade and Industry Ministry (MITI) announcing the introduction of the anti-dumping duties,” he said.

Mohd Desa said that in the manufacturing segment, Leader Steel had rapidly expanded more products with various sizes to widen its market share and to increase profit margin.

“Hence, the group expects to achieve promising performance for the minerals trade division in the year 2015.

“The group expects the minerals trade division will contribute higher revenue and profits in year 2015,” he said.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)