The Sun (Malaysia)

Masteel’s new plant to boost sales by 10-17% in FY16-17: PublicInve­st

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PETALING JAYA: Malaysia Steel Works (KL) Bhd’s (Masteel) new rolling mill in Bukit Raja, Klang, is expected to generate better contributi­on to the group in the last quarter of this year while the additional capacity will help improve the group’s sales by 10-17% in FY16-17.

PublicInve­st Research said the rolling plant has started operating since last month after 2 years of constructi­on. The new 150,000 tonnes rolling mill, which costs about RM120 million, will increase the total rolling capacity to 600,000 tonnes and which can be expanded by another 100,000 tonnes in the future.

“The new rolling mill will produce Y10, Y12 and Y16 (small diameter) premium steel bars, which will fetch higher margins (additional RM100 on the selling price). We expect to see additional sales contributi­ons from the new rolling mill in 4Q this year. Meanwhile, based on current steel bar prices, we expect the additional capacity will help improve the group’s sales by 10-17% in FY16-17,” the research house said yesterday.

It expects Q3’15 to be another loss-making quarter mainly due to stiff competitio­n from steel bar imports.

“Currently, about 50% of the group’s revenue is derived from dealers while 20% comes from MRT-related projects. The company also exports about 10% of its production overseas, which will likely benefit the company through foreign exchange gains.”

Also, it said the Malaysian steel industry has been pushing for tighter measures on steel product imports in efforts to curb stiff competitio­n, particular­ly from China.

“Neverthele­ss, we think the outlook remains challengin­g in the short term and will need to take a while for the industry to flush out the cheaper-priced steel imports.”

Besides pushing for a 5% import duty on steel bars and stricter enforcemen­t on illegal use of non-Malaysian standard compliance steel products, the local steel industry is also looking towards the implementa­tion of a 35% safeguard duty to protect local interests. It will be tabled in November and will be on a retrospect­ive basis once it is successful­ly imposed.

Hence, PublicInve­st maintained its “neutral” call on Masteel with an unchanged target price of 40 sen.

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