Koon Yew Yin 官有缘 - Megasteel closure will benefit other steel manufacturers

Koon Yew Yin 官有缘 - Megasteel closure will benefit other steel manufacturers

Megasteel, a 79%-owned subsidiary of Lion Corp Bhd and the country’s sole producer of hot-rolled coils (HRC) which also produces cold-rolled coils (CRC) and other steel-related products was reported by a local newspaper to have closed its plant in Banting, Selangor, a few days ago.

Megasteel had been suffering losses in the past years due to excessive dumping of steel products by foreign millers and had been operating intermittently depending on market conditions.

The announcement in January by the ministry of international trade and industry that the government had terminated the investigation for the Safeguard Petition on imported HRC had further impacted Megasteel’s operations which resulted in the retrenchment of its staff.

The cessation of Megasteel’s operations would benefit CRC players as it opens up the opportunity for them to source HRC, which is a raw material for CRC, from alternative providers such as from China. China is the cheapest steel manufacturer in the world. In the past the Government has restricted the import of steel from China to protect Megasteel. The Government would issue only import permit for the portion of their products which are meant for export.

All the manufacturers of CRC, steel flat plates, steel bars will benefit. As a result of the Megasteel closure announcement all the share prices of companies such as CSC Steel, Hiap Teck, Southern Steel, Leader Steel, Choo Bee, MIG, Mycron Steel and others have been shooting up like rockets.

Conclusion: Among all the companies that will benefit from the Megasteel closure is CSC Steel which will benefit the most because it is largest manufacturer of flat steel plates, wires and other steel products. It has Rm 320 million cash, no borrowings and its total issued shares is 370 million.

CSC Steel Holdings Berhad, (formerly known as Ornasteel Holdings Bhd), and Group Steel Corporation (M) Sdn Bhd., CSC Steel Holdings was successfully listed on the Main Board of Bursa Malaysia Securities Berhad on 30 December 2004.

In order to simplify the marketing activities, effective from 1 January 2009, CSC Steel Sdn. Bhd. merged and acquired Group Steel Corporation, and actively promote the Group’s core products, which are pickled & oiled steel coils (PO), cold rolled steel coils (CR), galvanized steel coils (GI) and pre-painted galvanized steel coils (PPGI).

By leveraging the support of its major ultimate shareholder, China Steel Corporation of Taiwan in term of management, technology and high quality products, the Group is committed to improving its operational efficiency, productivity as well as places great important on corporate social responsibility and corporate governance.

On 29th Aug 2016 the company announced that it has concluded the purchase of 2 pieces land with factories from Tatt Giap Group Bhd for Rm 41 million. Tatt Giap Group Bhd was incorporated in June 1978 as an importer and stockiest of stainless steel materials.

This acquisition will help increase CSC Steel’s profit.

The last traded price was Rm 1.88. Its 1st quarter eps was 2.43 sen and 2nd quarter was 7.95 sen totaling 10.38 sen for first half year in comparison with 4.25 sen for last year. Its NTA is Rm 2.11 and it has about 80 sen cash per share. I believe its 2nd half year profit will be better than its 1st half.

Basing on this result, it complies with my share selection golden rule. The company must make more profit this year than last year otherwise the share price will not go up.

Koon Yew Yin 官有缘 - Megasteel closure will benefit other steel manufacturers