‘Lion Industries’ steel division led to 9MFY16 net loss’
KUCHING: Lion Industries Corporat ion Bhd’s ( Lion Industries) higher losses for its steel division has led to an overall first nine months of the financial year 2016 (9MFY16) net loss for the group of RM107.4 million.
The research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) observed this in a recent report and noted that the operation of its steel business continues to be impacted by lower profit margin.
In a filing on Bursa Malaysia, Lion Industries noted that for the first nine months of the financial year under review, after accounting for the loss on exceptional items of RM0.2 million comprising a gain on disposal of an associated company and impairment loss on receivables, the group recorded a lower loss before tax of RM108.5 million compared to RM134.7 million in the same period last year.
The group further noted that its steel division recorded a higher loss of RM127 million compared with RM69.3 million in the same period last year.
According to MIDF Research, in the third quarter of FY16 (3QFY16), Lion Industries’ steel division reported higher losses of RM52.3 million versus RM41.5 million and RM33.2 million in 2QFY16 and 1QFY16 respectively.
“Operation of its steel business continues to be impacted by lower profit margin albeit higher sales tonnage in the quarter,” the research arm said.
MIDF Research noted that revenue in 3QFY16 rose 17 per cent quarter on quarter (q- o- q) to RM697.7 million.
It further noted that this was contributed by higher revenue of the group’s steel, property and building materials divisions, rising by 6.6 per cent q- o- q, 39.3 per cent q- o- q and 33.9 per cent q- o- q respectively.
“Higher losses from operations were reported in 3QFY16 of RM52.3 million (down 26 per cent q- o- q) contributed by losses of its Steel Division,” the research arm said.
The research arm has meanwhile pointed out that Lion Industries’ building materials division reported an improved profit from operations of RM3.5 million in 3QFY16 (up 67.8 per cent q- o- q) while the group’s property division recorded a higher earnings before interest and tax ( EBIT) of RM11.7 million in 3QFY16 (up 191.6 per cent q- oq) due to a property development project in Penang.
Moving forward, MIDF Research projected that the dumping activities of imported steel in the local market are expected to continue until further measures have been enforced by the Government.
“With the recent rally, steel prices have surged after the Chinese New Year this year with a stronger price increase in March and April 2016,” it said.
The research arm has however noted that towards the end of May 2016, correction in steel prices have started and is likely to continue into the second half of current year 2016 (2HCY16) until a stabilisation point where prices are supported by fundamentals of supply and demand.
It further noted that the current steel price rally is not supported by improved fundamentals of demand, hence the surge in steel prices earlier is not sustainable.