SHAH ALAM: Steelmaker Hiap Teck Venture Bhd expects to triple its earnings in the current financial year ending July 31, 2019 (FY19), supported by its 35%-owned joint venture company Eastern Steel Sdn Bhd (ESSB) which resumed its slab production last July.
ESSB manufactures and sells a range of steel products mainly targeting the local and Southeast Asian markets.
ESSB’s operations had been suspended since October 2015 amid depressed slab prices and weak demand, caused by influx of cheap imports from China. The suspension was part of the group’s strategy to minimise its losses.
Speaking to reporters after the group’s AGM today, executive director Foo Kok Siew said the group’s financial performance in the past three years were mainly dragged down by ESSB’s losses.
However, Foo said he expects that ESSB will contribute positively to the group’s earnings in FY19 as the steel slab prices have improved a lot compared to the time when ESSB’s operations were halted.
“The (slab) prices are much better now. When we stopped it was about US$260-270 per metric ton (MT) and now it is about US$450 per MT. So if I can turn ESSB from negative to even zero, the group’s earnings will be double or triple.
“Before ESSB itself, the group is very profitable. So as long as ESSB is making profit, our earnings growth will be very strong because we don’t have a drag on earnings by ESSB,” he added, noting its trading and manufacturing divisions have always been profitable.
Foo said he is optimistic of turning around ESSB in FY19.
Hiap Teck returned to the black in financial year ending July 31, 2018 (FY18) after being in a loss-making position for three years, mainly due to lower share of losses of ESSB.
In April, the group announced that it was paring down its stake in ESSB to 35% from 55% previously as part of its FY18 turnaround plans. Hiap Teck disposed of its 20% stake to Shanxi Jianlong Industry Co Ltd for RM139.3 million.
In its latest first quarter results ended Oct 31, 2018 (Q1FY19) the group’s net profit declined 36% to RM10.3 million, from RM16.04 million in the same period last year due to lower margins.
Its revenue increased by 27% to RM328.35 million from RM258.49 million previously, thanks to higher sales across all divisions.
Nevertheless, the group’s outlook for steel industry remains challenging in light of the oversupply in both the residential and commercial property sub-sectors, review of mega projects by the government and the US-China trade dispute.