Saturday, 17 September 2011

Masteel: Must Steal the Limelight?

The world economy seems to head towards a double dip. In Malaysia, though property sector is tipped to reach its peak soon, construction sector may benefit from many contracts which will be awarded under the ETP. The MRT project in the Greater KL, either new line or extension line, is especially what most investors are looking forward to. Will the government delay the MRT project due to negative economy outlook? Don't forget that the general election is around the corner...

Infrastructure construction and property development need steel. So besides the construction companies, steel companies may as well benefit from the ETP contracts award. Most upstream steel companies here already suffered a hard time during 2009 as the steel price and demand dropped significantly. Most of them registered loss during that period. Currently it looks like they are on the up side of the cycle. However, will the double dip worry pull it back again?

I always like to look into a small cap company which has great potential of growth, rather than those "blue chips". For upstream steel companies, Malaysia Steel Works (Masteel) seems like a good one.

Masteel financial result 2006- 1H2011:

RM mil Revenue Net profit
2006 362 30
2007 548 44
2008 881 79
2009 687 -8
2010 1005 30
1H2011 616 22

Besides expected increasing demand and steel price in the near future, there are a few positive notes for Masteel.
  • Based in Klang valley, where the construction and property development are most robust. It has its meltshop in Klang and rolling mill in Petaling Jaya.
  • Said to have good relation with "blue chips" property developer in Klang Valley.
  • Planned capacity expansion to increase its rolling capacity from 350,000MT/yr to 500,000MT/yr by 2012.
  • "Diversify" into commuter project in Iskandar Malaysia through a 60/40 JV with KUB. It has received approval from the state government and now pending approval from federal government. After completion, it has 33 years concession to operate the rail system, which represent a recurring income for Masteel. Minister of Finance has 22% share in KUB.
  • Use mainly scrap metal as raw material instead of iron ore. Price hike of scrap usually lag behind iron ore.
  • Good management and a net gearing at around 0.4.

Companies with upstream steel production: first 6 months of 2011

Revenue Net Profit NTA Share price
Lion Ind 2897 108 4.54 1.38
Southern 1313 89 2.11 2.18
Ann Joo 1119 75 2.21 2.08
Kinsteel 1041 -10 0.79 0.54
Perwaja 809 -39 1.52 0.77
Masteel 616 22 2.36 1.05

From the list above, Lion is mighty, Southern and Ann Joo are looking good, and Masteel is catching up. The share price of Lion Ind and Masteel are far less than their NTA. Nevertheless, increasing raw material price and cautious economy outlook remain the risk.

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