Masteel : Safer bet for Steel Exposure

For your weekend reading:

Its earnings results for the fourth quarter ended Dec 31 of financial year 2013 and full FY2013 were in line with market expectations.


Turnover in the last quarter of the year was 11.7% higher year on year on the back of increased volume demand but was relatively flat compared with the immediate preceding quarter.


Net profit doubled in 4QFY2013 to rm5.4 million from rm2.7 million in the previous corresponding quarter. This is attributable to better economies of scale, which led to improved margins.


For the full year turnover was some 4.8% higher at rm1.38 billion. Operating margins in 2013 improved due to lower cost for scrap steel and better plant utilization on higher volume sales.


Consequently net profit rose to rm28.8 million from rm23.9 million in 2012 – up by 20.6%.


The company’s balance sheet remains in good shape and gearing is among the lowest in the stel sector. Gearing stood at 41% as at end 2013.

Domestic steelmakers have been going through a tough patch in recent years amid the global economic slowdown, resulting in excess capacity and weak selling prices. Moreover persistent overproduction in China continues to dampen selling prices.


Indeed, dumping by Chinese manufactures has pressured margins in select segments of the domestic market. There is also anecdotal evidence of cheap imports of steel bars although to a far lesser degree.


Against this backdrop, Masteel has fared comparatively well. The company stayed profitable in the past four years prior to 2014 though earnings were somewhat range bound.


Positively volume demand has been trending higher on the back of increased activities in the domestic construction and property sectors.


Many of the projects are centered within the greater Klang Valley, which benefits Masteel given the proximity to its plants and therefore lower transport costs.


To meet demand increases, the company has been inching production capacity higher through process improvements, helping to boost economies of scale and overall margins.


The company’s sales are mostly domestic centric where selling prices have been comparatively resilient. The cost for scrap steel has trended lower through 2013 helping boost margins slightly.


By comparison, China uses iron ore and coking coal as feedstock for some 90% of its mills.


On the other hand, the weaker ringgit will raise the cost of the raw material, the portion that is imported. Any savings from cheaper scrap steel will also likely be offset by increases in other expenses driven by higher electricity and fuel prices.


Expecting higher turnover for MaSteel in 2014 but flattish margins.


Masteel is pushing ahead with its capacity expansion plans.


Going forward, due to weak prevailing sentiment for steel stocks, upside gains for Masteel will be limited in the near to medium term.


Masteel is a comparatively safer bet for those looking for steel exposure.


Its current PER stood at about 8.2 times and 7.3 times estimated earnings for 2014 and 2015 respectively.


It is also trading at only 0.4 times book value of rm2.51.


In other developments, discussions for an intracity commuter train project in Johor – under a 60:40 JV with KUB Malaysia are still ongoing with the various government departments.

Source : Kenanga remiser 

Spritzer/Yee Lee

Current (Jan 2014) major shareholders of Sprtizer are Yee Lee Group/Lim A Heng holds 56.5% and Skim Amanah Saham Bumiputera with 5.2%


To recap in Aug 2010 it was reported that Yee Lee Corp Bhd has increased its stake in Spritzer Bhd to 32.35% after buying 5.5 million 50 sen shares, or a 4.2% stake, from Transworld Commodities (M) Sdn Bhd, for RM5.61mil.while Yee Lee Holdings Sdn Bhd has 14.05%, the group will have a total equity interest of 46.39%.


It has raised eyebrows because Yee Lee Corp’s direct interest is closed to 33% threshold level. Does this mean that a corporate exercise between Yee Lee Corp and Spritzer is in the works?



Spritzer recorded revenue of RM55.2 million during 2Q/FY14, an increase of 18.3% y-o Meanwhile, NPAT recorded was RM3.4 million, lower by 34.4% y-o-y. The lower profits were attributed mainly to the higher operating costs. This was especially due to costs on transportation, salary and payroll related expenses, advertising and promotional (A&P) expenses. Furthermore, the weak Malaysian Ringgit had caused an increase in the prices of PET resin consumed.


On the demand side for Spritzer, thedomestic economic environment still appears supportive. This is so due to the fact that most of the group’s sales are derived from the domestic market (whereby the group is the market leader).


In the mean time, the group faces challenges such as domestic inflation, implementation of minimum wages, extension of workers’ retirement age, hike in electricity tariffs and the volatility of raw material prices. Despite of the weak external environment, the group is also working on improving its sales for the export market (for instance Singapore, Hong Kong, Japan, Australia and the Middle East).


With the group’s continuous efforts to promote its various brands and range of bottled water products, enhance its production capacity and to upgrade its warehousing facilities, the sales volume of its bottled water products is poised to continue growing.


The group plans to continue focusing on improving its productivity and operational efficiency in order to remain competitive.


Spritzer has joined the “RM200 million revenue club” at the end of its FY13.


In general, as a consumer product-based business, Spritzer also faces possible routine risks such as a slower rate of economic growth, weak product demand growth, foreign exchange fluctuations, rising production costs (raw materials – e.g. PET resins for plastic bottling) and stiff competition from other major bottled water manufacturers.

Yee Lee has allocated RM36mil for its capital expenditure for 2013 to expand its business while continuously looking to add products to its distributorship portfolio.

It had allocated RM20mil for its packaging business, mainly to expand the efficiency of the aerosol can production machineries, while RM16mil had been set aside for its plantation division.

It is exploring the feasibility of developing a parcel of undeveloped land in Sabah into an oil palm plantation.

The trading division was its biggest revenue contributor, providing 65% of the group's total revenue, followed by 22% from its packaging division, 12% from its palm oil refinery and mill and 1% from its other businesses, including plantation division.

Yee Lee's main products include the Red Eagle cooking oil, Vecorn corn oil and SunLico sunflower seed oil. It also has a 32% stake in bottled mineral water producer Spritzer Bhd.

Its wholly owned subsidiary had lost the distributorship for Johnson & Johnson products from Oct 1 2013.



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