Melewar Industral Group Berhad (Melewar - 3778) had principal activities on manufacturing of CRC steel sheet and steel piping, engineering services as well as investment in Power Generation. Melewar is owned by late founder and chairman Tunku Tan Sri Abdullah ibni Almarhum Tunku Abdul Rahman from the Negeri Sembilan royalty.
Melewar had gone into severe financial condition after it's investment in the Mperial Power Ltd in Thailand had gone sour due to unable to see demand generated from their 160MW electric power plant. The group had went through several restructuring exercise which includes selling it's steel tube operation (Melewar Steel Tube Sdn Bhd) to subsidiary Mycron, settled by issuance of Mycron share at RM 0.44 / share to Melewar. Currently, Melewar hold 71.52% of Mycron.
The current state of steel industry had finally see some light when MITI had started to investigate on imported steel from China, Vietnam and South Korea. Currently, MITI had imposed anti dumping duties on pre-painted, painted, color coated steel coils that is imported from China and Vietnam. How will this play out for a Cold Roll Coil (CRC) player like Melewar ?
Positive on Anti Dumping Duties imposed on Cold Roll Coil 2nd Quarter 2016
The local market demand for CRC is still relatively strong and growing in an annual basis. However, the imported CRC actually play out to be approximately 51% of the supply in Malaysian market. Margin are tightly squeeze when China, Vietnam and South Korea decided to export their excessive CRC production to the nearby neighboring country like Malaysia at a very cheap prices.
Cscsteel Berhad had since filed a petition to MITI in order to start and investigation on the related matter. According to close sources that are familiar with this matter, Cscsteel are at a very favorable position at seeing anti dumping measurement being enforced to protect the local CRC player in the steel industry.
As of the latest, Cscsteel had displayed spectacular share price performance, with more than 40% capital appreciation within 3 months.
Melewar, through 71% owned subsidiary Mycron Steel Berhad also focuses on CRC steel sheet.
Fundamental Outlook
Melewar had started to turn around it's operation for FYE 2016 with 2 consecutive quarter in the black. Industry player are positive on the imposition of anti dumping duties on CRC steel sheet, and thus, will see local player rushing in to fulfill the gap left from the CRC import from China, Vietnam and South Korea.
Should we factor in the finalization and implementation of anti dumping on CRC import, Melewar will easily be seeing a 50% increase from the projected annualized EPS of 5 cents, which will come out to 7.5 cents.
Given a PER x10, Melewar had a tendency to trade at RM 0.75.
Currently, Melewar NTA is RM 1.32 per share.
Strong Steel Trend
The local market continue to see strong uptrend in the steel industry.
Steel industry continue to see domination in the market due to a stronger MYR as well as strong local consumption from large infrastructural project.
Melewar will also be finalizing it's disposal of investment of Siam Power through Mperial Power Ltd. Melewar is looking to seal the deal in the 2Q of 2016, disposing the remainder 49% stake in Mperial Power.
Conclusion
At the current outlook, Melewar is a very interesting counter to be monitored, due to the potential huge vacant supply left by CRC import. Beside that, Melewar power asset sale will also see the group in a better cash position.
Melewar short term target is RM 0.45, medium/long term at RM 0.55 to RM 0.60.
http://bonescythe.blogspot.my/2016/04/melewar-steel-man.html
