KUCHING: Malaysia Steel Works (KL) Bhd (Masteel) might report a surprise surge in the latter half of the year in tandem with its efforts to import cheaper scrap metal.
TIMELY DECISION: Ng continues to add that Masteel is targeting to increase its rolling capacity to 500,000 tpy upon full commissioning in FY12 with hopes that this will be on time to ride on the string of public infrastructure and building projects announced by the government.
OSK Research Sdn Bhd (OSK Research) in its recent visit to Masteel’s offices affirmed the group was hopeful of riding on a long list of projects announced by the government, especially with its expansion plans well under progress.
The research firm’s construction analyst Ng Sem Guan revealed that during the visit, Masteel’s management explained more on its operations overview as well as the current steel industry outlook.
“After spending some RM60 million to RM70 million over the past two years to modify its furnace and billet caster, management expects billet capacity to progressively increase from 450,000 tonnes per year (tpy) in the financial year 2012 (FY12) by deploying in stages 130mm billets instead of the original 120mm ones,” he said.
“The company has also identified a plant near its existing rolling mill to embark on its downstream expansion plan.
“As the said plant only requires minimum modification conversion to install a new rolling facility, the company has identified three machine suppliers from China to expedite the delivery of the required machines.”
Ng continued to add that Masteel was targeting to increase its rolling capacity to 500,000 tpy upon full commissioning in FY12 with hopes that this would be on time to ride on the string of public infrastructure and building projects announced by the government.
While the OSK Research analyst envisaged weak financial performance from steel mills in the second half of 2010, Masteel suggested that the company’s sales tonnage was particularly encouraging.
“The company has been endeavouring to import containerised scrap metal after the liberalisation of the scrap market since the end of 2008,” Ng underscored. “Although we are surprised at the possible increase in sales volume, we think Masteel may have benefited from being centrally located in the catchment areas of steel demand.
“Being a smaller mill also makes it easier for the group because the volume it produces is way easier for the market to absorb.”
Ng further suspected that the group might have accumulated enough experience in dealing with cheaper scrap imports by container which were normally priced at about a US$20 (approximately RM61.80) discount compared with bulk imports.
“Therefore, we are revising upwards our FY10 estimates by 62.7 per cent to RM42.4 million and FY11 numbers by seven per cent to RM47.5 million.
“We upgrade our call trading to buy with a new target price of RM1.22 per share,” he ended.