Hiap Teck eyes stronger earnings growth
Higher margin products, turnaround in JV to lift steel pipe maker
SHAH ALAM: Steel pipe maker Hiap Teck Venture Bhd eyes a stronger bottom line growth in its current financial year of 2019 (FY19), driven by exports of higher margin products and the turnaround of its steel slabproducing joint-venture, Eastern Steel Sdn Bhd.
Fresh from returning to the black in the previous financial year ended July 31, Hiap Teck believes its depressed earnings performance will be a thing of the past.
While a slightly weaker sales volume is expected in FY19 due to the soft demand for steel-related products, this will likely be mitigated by the expected increase in exports of high margin scaffolding products to other countries.
Moving forward, Hiap Teck plans to raise its exposure in its existing export markets such as Philippines and Indonesia.
According to the group’s executive director Foo Kok Siew ( pic), aside from the stronger revenue contribution through exports, the turnaround of Eastern Steel will be substantial in boosting Hiap Teck’s financial performance.
The 35%-owned Eastern Steel resumed its operations in July this year following the disposal of a 20% stake by Hiap Teck to Shanxi Jianlong Industry Co Ltd for RM139.3mil. To recap, the steel slab producer suspended operations in Oct 2015 due to the then diffi- cult market conditions.
“Before this, our earnings have been dragged down by Eastern Steel. Now that we have resumed its operations, as long as it starts to make profit, our earnings growth in FY19 will be very strong,
“If we can turn Eastern Steel’s earnings from negative to even zero, the group’s overall earnings will double or triple,” Foo told reporters after Hiap Teck’s annual general meeting yesterday.
Eastern Steel has an annual production capacity of 700,000 metric tonnes and is currently running at a full capacity. In the first quarter ended Oct 31, the share of loss from Eastern Steel narrowed significantly to RM4.26mil as compared to the share of loss of RM42.35mil in the immediate preceding quarter.
When asked about the company’s rising borrowings, Foo described it as “normal”.
“If you look at our balance sheet, we are financially very sound. Borrowings-wise, they are mostly short-term working capital lines of credit to support our trade cycle.
“The financing on trade cycle basically refers to Hiap Teck’s short-term loans to cover the purchasing cost of raw material and the credit terms we gave to our customers.
“Assuming we give our clients three months to pay for the sold items, the borrowings will help us to cover our cash needs for operations until we receive the deferred payments from our customers,” he said.
As at Oct 31, the steel pipe maker possessed total borrowings of about RM617.77mil, of which 97% are short-term in nature - to be repaid within a year.
On a year-on-year comparison, Hiap Teck’s borrowings have escalated by over 25%.
The Hiap Teck stock has generally been on a downtrend from Feb 2018 and has since nearly halved in value.
Yesterday, the counter declined by 2.5 sen or 8.47% to 27 sen, with about 9.1 million shares changed hands.