KUALA LUMPUR (July 9): Malaysia Steel Works (KL) Bhd is targeting to boost its revenue by RM360 million annually with the commencement of its newly constructed 200,000 tonne per annum (tpa) rolling mill in Selangor at end-July.
It said in a statement today that the new rolling mill will boost its downstream steel bar production capacity from 450,000 tpa to 650,000 tpa upon reaching full capacity, efficiently matching its upstream steel billet production capacity of 700,000 tpa.
“Due to the premium prices of its new product range, the expansion is expected to contribute an additional RM360 million yearly to the group’s topline at full capacity,” said Masteel.
For its financial year ended Dec 31, 2014 (FY14), Masteel’s net profit fell 41.5% to RM15.80 million from RM27.01 million a year ago. As revenue stood at RM1.45 million in FY14, the mill will contribute an additional 25% to its revenue.
Masteel (fundamental: 0.15; valuation: 0.9) manufactures and markets high tensile steel bars, mild steel bars and prime steel billets.
“Our new rolling mill would allow us to convert at least 90% of our upstream steel billets into higher value-added steel bars, compared to about 60% at present,” said its managing director and chief executive officer Datuk Sri Tai Hean Leng.
He said in addition to benefitting from better selling prices, the increased conversion rate would enable Masteel to capture a larger share of steel bar demand from the robust domestic construction sector.
“We are confident that our strategic expansion would accord us strengthened business sustainability in the long run, as well as contribute towards substantial improvements to our future financial performance,” he added.
Masteel said the domestic steel industry stands to benefit from ongoing government efforts to curb imports of substandard steel products at non-competitive rates, including the announcement of a 5% import duty on carbon steel bars and wire rod in June 2015.
This was followed by the gazette of the Construction Industry Development Board (CIDB) (Service of Notice) Regulations 2015 in July 2015, outlining substantial fines for usage of building materials that are not certified in accordance to the CIDB Malaysia Act 1994.
“We hope that the stricter regulations would curb the high volume of cheap steel bar imports, especially from China where oversupply and price dumping are rampant. We thus look forward to domestic prices of steel bars improving to a more favorable range in the future, from current challenging conditions,” Tai added.
He said Masteel will remain vigilant on the overhang of cheap imported steel products which may continue to weigh on steel prices in the near term, as well as higher production costs due to rising natural gas prices and the weaker Malaysian ringgit.
Masteel shares are expected to resume trading tomorrow, following the trading suspension imposed on May 12 after it failed to submit its annual audited accounts for FY14 within the stipulated timeframe. Prior to the suspension, it was trading at 62 sen, which gave it a market capitalisation of RM151.3 million.
(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.)