AFTER a powerful 2021, because of increased promoting costs, many metal producers could possibly be taking a look at compressed margins and a normalization in promoting costs this 12 months.
Amid the anticipated restoration in demand, metal gamers are already going through an increase in uncooked materials costs equivalent to iron ore, coupled with increased vitality and freight prices.
However, an analyst says metal producers may nonetheless anticipate to be worthwhile in 2022, leveraging on the decide up in building and industrial actions following the reopening of the economic system.
“World provide chain disruption, stemming from China’s zero-Covid coverage and the Russia-Ukraine warfare, may additionally preserve metal promoting costs elevated,” the analyst provides.
The decrease margin and promoting costs are anticipated to have an effect on even the nation’s largest listed metal maker, Ann Joo Assets Bhd,
In a sector report printed on April 4, Kenanga Analysis mentioned that Ann Joo’s peak profitability has handed, and earnings may flip weaker within the subsequent quarters.
That is premised on the expectation that weakening metal worth would compress margins as uncooked materials prices play catch-up.
Iron ore, which is the first uncooked materials in blast furnace metal manufacturing, has seen an increase in worth of virtually 40% year-to-date.
Value of metallurgical coal, which constitutes about 40% of the blast furnace price of manufacturing, has additionally remained at a excessive stage in 2022.
Amid the challenges, an analyst says that Asian steelmakers, together with Malaysia, would profit from China’s transfer to curb its home metal manufacturing because the nation seeks to be extra environment-friendly.
“China should import metal from elsewhere to fulfill native wants for metal, so producers in different nations equivalent to Malaysia would profit from this.
“Different nations that might now not buy the identical quantity of metal from China would additionally flip to Malaysia, for instance.
“That is constructive for the highest line of native metal makers this 12 months,” the analyst says.
The expectations of one other constructive 12 months for metal gamers, regardless of the influence on margin and promoting costs, have boosted native metal shares up to now one month.
Ann Joo and Hiap Teck Enterprise Bhd are up by over 10% and seven% respectively, whereas Lion Industries Corp Bhd‘s share worth has elevated by nearly 13%.
A smallish metal participant, Malaysia Metal Works (KL) Bhd (Masteel), can also be up by 11.3% within the interval.
Regardless of the rise, it’s value noting that these shares stay nicely under the highs seen in 2021.
It appears that evidently the market nonetheless awaits the metal gamers to ship constructive earnings within the not too long ago concluded first quarter of 2022.
Masteel, which is concerned within the manufacturing of excessive tensile metal bars, gentle metal bars and prime metal billets, stays constructive of the trade’s outlook.
In its outcomes submitting launched on Feb 22, Masteel mentioned the graduation of spring civil building interval in North Asia and the ending of restrictions of metal mill actions in China for the Beijing winter Olympics are inflicting metal costs to recuperate internationally and domestically.
The group, whose greater than 91% of its income is contributed domestically, expects costs of native metal bars are anticipated to proceed to development increased.
This is because of rising worldwide metal costs and the gradual restoration of the Malaysian economic system from the Covid-19 pandemic.
The group additionally exports its metal merchandise to China, Australia, New Zealand, Indonesia, Singapore and Vietnam, amongst others.
“The corporate continues to maximise its new metal making services and is anticipated to carry out satisfactorily amid some quick time period volatilities because of the Omicron wave and lack of labor points within the nation,” Masteel mentioned.
Masteel staged a turnaround within the monetary 12 months ended Dec 31, 2021 (FY21), after two consecutive years of losses.
The rebound was attainable on the again of upper promoting costs, ensuing from the restoration of the worldwide and native metal costs, and enhanced manufacturing price effectivity.
The steelmaker recorded a internet revenue of RM32.5mil in FY21 as in comparison with a internet lack of RM14.73mil within the earlier corresponding 12 months.
Masteel’s income, alternatively, improved by 14.18% year-on-year to RM1.58bil from RM1.38bil within the earlier 12 months.
This was achieved regardless of recording decrease gross sales quantity in FY21.
The group’s internet revenue margin in FY21 was recorded at 2.1%
Whereas Masteel declined to answer StarBizWeek’s queries, together with on the plans to enlarge its capability, the group has beforehand mentioned that it has substantial capability to fulfill the anticipated uplift in trade demand.
Masteel plans to capitalize on its upgraded metal manufacturing services to fulfill the elevated demand.
In an earlier press assertion, Masteel managing director and CEO Datuk Seri Tai Hean Leng remained upbeat on the group’s prospects.
That is contemplating that the stronger demand for metal from the accelerated tempo of financial actions globally have been anticipated to overshadow the influence of uptrending uncooked materials costs.
Furthermore, the continuing battle in Japanese Europe is just not anticipated to have any influence on the group’s earnings, based on Tai.
“With our massive capability and dependable supply community, we’re assured of capturing this demand wave,” he mentioned.
Masteel’s potential to additional broaden its manufacturing capability could also be restricted, contemplating that the group already has excessive money owed on its books.
As of end-2021, the steelmaker had complete borrowings of RM380.82mil towards money and money equivalents of RM56.96mil.
By way of valuations, Masteel has a price-to-earnings (PE) ratio of seven.1 instances, in comparison with AnnJoo’s 4.32 instances and Hiap Teck’s 3.44 instances.
Choo Bee Steel Industries has a PE ratio of two.46 instances and Leon Fuat Bhd is valued at a PE ratio of two.03 instances.