CIMB Research has technical buy on Lion Corp at 18.5 sen

KUALA LUMPUR (Jan 9): CIMB Equities Research has a technical buy on LION CORPORATION BHD [] at 18.5 sen at which it is trading at a price-to-book value of 3.3 times.

It said on Monday Lion Corp is still trapped in a downtrend channel but it thinks a short term bottom may have formed. The recent sideways consolidation suggests that a base is formed near the 16.5 sen level.

“As long as prices stay above the 16.5 sen level, we advocate traders to accumulate on weakness. The next upswing is likely to push prices towards 19.5 sen and 20.5 sen. The 200-day SMA is also a magnet for prices.

“MACD signal line is rising towards the zero level while RSI has also hooked upward. Key risk to this investment is that the stock could prolong its sideways consolidation,” CIMB Research said.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Stocks to watch: SapuraCrest, Can-One, XDL, Maxbiz, JCY

KUALA LUMPUR (Jan 6): The local stock market could see some intermittent profit taking activities on Friday as investors lock in their gains ahead of the weekend.

European shares were lower early Thursday afternoon, led by bank stocks on concerns about their financial health and as sovereign yields rose across the region after a French debt auction.

The FTSEurofirst 300 index of top European shares was down 0.8 percent at 1,012.78 points, with Italy's FTSE MIB index down 3.2 percent and France's CAC-40 down 1.1 percent.

The uncertain external developments could see investors taking a more cautious stance despite the firmer close of the broader market on Thursday.

Concerns would for stocks which had run-up in the absence of positive corporate developments like Can-One, Box-Pak and BOUSTEAD HEAVY INDUSTRIES CORP [] (BHIC).

The FBM KLCI surged 10.21 points to close at 1,514.43, with KL Kepong surging RM1.76 to RM25.26. Turnover was 1.67 billion shares valued at RM1.46 billion. Advancers beat decliners 467 to 325 while 324 stocks were unchanged.

Can-One, whose share price surged 31 sen to close at RM1.37 with 6.95 million shares done, replied to a Bursa Malaysia Securities query that there were no factors for the unusual market activity.

Box-Pak could see profit taking, after rising 26 sen to RM2.52, despite earlier announcements that there was no plan to privatise it.

BHIC, which gained 26 sen to RM4.11, could also see a retracement in the share price after it clarified that it had not received any indication or direction from its shareholders about any major acquisition of shares in the company which might include potential privatisation.

However, on a positive note, SAPURACREST PETROLEUM BHD [] had secured two contracts worth combined US$227 million (RM712.78 million) to build two units pipelay cum heavylift offshore CONSTRUCTION [] vessels.

Its unit TL Offshore Sdn Bhd had finalised the contracts with Cosco (Nantong) Shipyard Co. Ltd. SapuraCrest said both parties had agreed that the contract be effective from Sept 10, 2011.

In XiDeLang Holdings Ltd (XDL), the company said Navis Capital has approached the former’s major shareholder Hong Peng International Holdings Ltd to acquire its stake.

The British Virgin Islands’ registered Hong Peng owns 240 million XDL shares or 60% as at Nov 11, 2009.

MAXBIZ CORPORATION BHD [] said the contract value of the letter of intent (LOI) of RM510 million from Fibre-N Sdn Bhd was based on the infrastructure works of RM5,100 per connection.

Maxbiz said the LOI was for the fibre-to-the-home and fibre-to-the-office (FTTX) infrastructure works for 100,000 connections to high- rise residential and office buildings in Klang Valley, Penang and Johor Bahru.

LION CORPORATION BHD [] has received Bursa Malaysia Securities Bhd’s approval to list up to 950 million new shares to settle the overdue amount owed by its 79% owned Megasteel Sdn Bhd.

JCY International Bhd might extend its gains from Thursday after the company’s recent statement it was likely to record a surge in earnings for the quarter ended Dec 31, 2011.

CIMB Research had stated said JCY’s profit guidance for the December quarter was even better than its already-above-consensus estimate.

It expected JCY’s positive earnings momentum to continue for at least the next two to three quarters and should catalyse a rerating of the stock.

“The favourable impact of a higher ASP, better product mix and stronger US$ prompts us to revise our above-industry forecasts again for FY12-14. “This raises our target price to RM1.54, still based on 6x CY13 P/E. Maintain Trading Buy,” it said.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Lion Corp gets Bursa nod to list 950m new shares

KUALA LUMPUR (Jan 5): LION CORPORATION BHD [] has received Bursa Malaysia Securities Bhd’s approval to list up to 950 million new shares to settle the overdue amount owed by its 79% subsidiary Megasteel Sdn Bhd.

The company said on Thursday Bursa Securities had also approved the proposed share consolidation.

However, the approvals were subject to conditions, wherein Lion Corp must fully comply with the relevant provisions under the Main Market Listing Requirements of Bursa Securities.

To recap, the 950 million new shares was to settle the RM950 million due by Megasteel to the unsecured trade creditors with an overdue amount of RM500,000 and above as at April 30, 2011.

This settlement would involve the issuance of one new share at par value of RM1 Lion Corp share and deferred cash payment of 20 sen for every RM1 of the overdue amount.

Lion Corp had said the proposed capital reCONSTRUCTION [] involved the proposed reduction of the par value of the existing LionCorp shares of RM1 each to 20 sen each by cancelling 80 sen.

This would be followed by the proposed consolidation of every five Lion Corp shares of 20 sen each into one share of RM1 each after the capital reduction was completed.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Up to RM1m in furniture vouchers for St Mary Residences buyers

KUALA LUMPUR: The developer of St Mary Residences in Kuala Lumpur is collaborating with XTRA, a premium branded furniture importer and retailer, to offer furniture vouchers to new purchasers of units in the serviced apartment project.

“As we approach the handover next year we have been receiving numerous enquiries from existing and potential purchasers on possible furnishing solutions. As a response to this demand, we have tied up with a reputable supplier to provide attractive furniture packages to our St Mary buyers,” said Eastern & Oriental Bhd (E&O) deputy managing director Eric Chan Kok Leong. The development is a joint venture between E&O and the Lion Group.

The offer is for the 15% remaining units available for sale, most of which are bumiputera quota units.

The promotion began Nov 15 and ends Dec 31. To be eligible for the vouchers worth between RM70,000 and RM1 million, potential buyers must be registered with XTRA on its promotional website prior to their purchase.

All transactions must be made via Mergexcel Property Development Bhd, a joint-venture company between the Lion Group and E&O that is undertaking the St Mary Residences project.

The serviced apartment project comprises 457 units priced from RM1.5 million to RM11.08 million with sizes from 1,131 to 6,759 sq ft. Buyers have a choice of six designs from Studio Suites, City Suites, Metro Suites and Rooftop Penthouses.

With a gross development value (GDV) of RM780m, St Mary Residences is about 70% complete.

With a gross development value (GDV) of RM780 million, St Mary Residences is about 70% complete, putting it on track for completion in mid-2012. Developed on the former site of St Mary’s School in Kuala Lumpur’s Golden Triangle, St Mary Residences comprises three towers, one of which is slated to be a luxury service residence run by a renowned hotel manager.

E&O has a total of 1,905.5 acres (771ha) of landbank in Peninsular Malaysia with an estimated potential GDV of RM20 billlion — 330.5 acres in Kuala Lumpur, 1,365 acres in Penang and 210 acres in Iskandar Malaysia, Johor.

Looking ahead, Chan said E&O has several projects set to launch in the next 12 to 18 months. The Andaman Series condominiums in Seri Tanjung Pinang, Penang, will be open for sale in 1Q12. In the south, the group is looking to introduce a wellness township in Iskandar Malaysia in 4Q12. The mixed development will comprise terraced and semi-detached houses, bungalows, serviced apartments and condominiums, wellness centres and retail and commercial properties.

The developer’s upcoming projects in Kuala Lumpur City Centre in Jalan Yap Kwan Seng and in Kemensah Heights are in various stages of planning.


This article appeared on the Property page, The Edge Financial Daily, December 2, 2011.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

No severe stake reduction for Lion Corp’s major shareholder

KUALA LUMPUR: Lion Corp Bhd major shareholder Tan Sri William Cheng Heng Jem will not see a significant reduction in his shareholding even if Lion Corp’s proposal to issue 950 million new shares to its creditors goes through.

If the share issuance takes place, Cheng’s stake in Lion Corp will be reduced marginally, to 74.26% from 77.35%.

According to an industry observer, while the stakes of the existing major shareholders of Lion Corp will not be adversely affected, minority shareholders in the company will be.

Minority shareholders will be subject to essentially an 80% haircut in the form of a five-into-onecapital reduction scheme.

The creditors, who are mainly companies within the Lion group, will be issued new shares at full par value of RM1 after the capital reduction scheme.

Lion Corp’s share price fell by 5.3% or 1 sen to 18 sen yesterday. Its stock has traded between a 52-week high of 42 sen in July and a low of 16.5 sen in September. Year-to-date, its stock has fallen by 32.1%.

Lion Corp last Friday proposed a settlement scheme involving the issuance of 950 million new shares in Lion Corp to settle RM950 million of debt owed by its 79%-owned subsidiary, Megasteel Sdn Bhd.


The settlement scheme would also involve a deferred cash payment of 20 sen for every RM1 of the overdue amount.

Lion Corp said the source of funding for the deferred cash payment would be from a proposed investment by new investors in steelmaking companies within Lion Corp and its related companies, Lion Diversified Holdings Bhd and Lion Industries Corp Bhd.

However, Lion Corp said in the event that the proposed investment does not materialise, Megasteel will seek alternative forms of funding such as internally-generated funds or fundraising exercises that may include the realisation of certain assets or investments in the Megasteel group.

Before the issuance of the 950 million new shares and deferred cash payment of 20 sen, Lion Corp will undertake a capital reduction exercise, where its existing shares of RM1 par value will be reduced to 20 sen each by the cancellation of 80 sen.

Lion Corp said as at Dec 1, 2011, its existing issued and paid-up capital of RM1.901 billion, comprising 1.901 billion shares of RM1 par value, will be reduced to RM380 million comprising 1.901 billion shares of 20 sen par value each.

The company said the 80 sen reduction will give rise to a credit of RM1.521 billion which would be utilised to reduce Lion Corp’s group accumulated losses of RM1.699 billion for FY11 ended June.

After the capital reduction, Lion Corp’s issued and paid-up capital will be consolidated on the basis of five shares of 20 sen each into one share of RM1, and thereafter the new shares for the debt settlement scheme will be issued.


This article appeared in The Edge Financial Daily, December 6, 2011.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

KL shares close marginally higher

Shares of the following companies had unusual moves in Malaysia trading. Stock symbols are in parentheses and prices are as of the 5 p.m. close in Kuala Lumpur. The FTSE Bursa Malaysia KLCI Index rose 0.93 points, or 0.1 per cent, to 1,489.95.

DRB-Hicom Bhd, an automotive, construction and property group, rose 10 per cent to RM2.20, its steepest gain since July 26. The company may have shown interest in acquiring a stake in national carmaker Proton Holdings Bhd from the country’s state investment fund, the Edge newspaper reported.

Glomac Bhd, a property developer, jumped 4.9 per cent to 86 sen, its highest close since Aug. 5. Second-quarter profit surged 50 per cent to RM23.8 million (US$7.6 million) from a year earlier, it said in a statement.

Lion Corp, a steel producer and builder, dropped 5.3 per cent to 18 sen, its lowest close since Oct. 11. The company may issue new shares to raise RM950 million to settle debt owed by its 79 per cent-owned Megasteel Sdn Bhd subsidiary, Lion said in a statement.

Proton Holdings Bhd, the state-controlled carmaker, soared 24.7 per cent to RM4.50, its steepest increase since Sept. 7, 1998. The Edge newspaper reported that Khazanah Nasional Bhd. may ask for bids for its 43 per cent stake in Proton.

Tenaga Nasional Bhd, the country’s biggest power producer, gained 1.4 per cent to RM5.72, set for its highest close since Nov. 16. The company signed a 25-year agreement to buy electricity from Malakoff Corp’s Tanjung Bin power plant when completed in 2016. Tenaga also agreed to sell Malakoff coal for the plant, the power company said in a statement. -- Bloomberg



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

New shareholders emerging in Lion Corp?

KUALA LUMPUR: Some interesting shareholding changes could be in the offing at Lion Corp Bhd, the steel manufacturing arm of the Lion Group helmed by Tan Sri William Cheng Heng Jem.

Last Friday, 543 million shares, representing almost 28.6% equity interest in Lion Corp, crossed in three large blocks of 349 million shares, 105 million shares and 89 million shares, at 21 sen apiece or about RM114 million.

Interestingly, Bloomberg recorded the transactions slightly after 5pm, when the market closed.

It appears then, that the off-market transactions may have been timed to avoid affecting the share price or speculation in Lion Corp shares during trading hours, or that it may have been a rushed transaction. The transactions were also timed just ahead of an announcement of a major debt settlement scheme the same evening.

Lion Corp closed last Friday unchanged at 19 sen, meaning the sale was at a slight premium of 10%.

While some were speculating on the entry of a foreign party into Lion Corp, others brushed it aside as possibly the transfer of shares by one entity to another by controlling shareholder Cheng.

A market observer noted that internal restructuring has been a common feature within the Lion Group in the past, as the group sought to streamline its diversified businesses, pare down debts and remove cross-shareholding structures.

Malaysia's only flat steel producer, Megasteel was set up at a cost of RM3.2 billion, which could explain its high debt levels.

As at end-October this year, Cheng had control over slightly more than 77% of Lion Corp shares and was the only substantial shareholder in the company. This also means that no other party could have sold such a big block of shares in Lion Corp.

Senior personnel of Lion did not comment, with some saying they were not aware of what was happening.

Market watchers speculate that a Chinese party is entering into Lion Corp, possibly to assist in its main asset, Megasteel Sdn Bhd, the country’s only integrated flat steel mill, producing hot rolled and cold rolled coils.

According to Lion Corp’s annual report, it has almost 79% equity interest in Megasteel, via its wholly owned unit Limpahjaya Sdn Bhd, while an additional 21% is held by Lion Diversified Holdings Bhd, another company controlled by Cheng.

News reports have linked Cheng with Chinese giants Baosteel Group Corp and with Taiwan-based China Steel Corp (CSC), looking to take over some of his assets, largely to assist Megasteel, but there has been little news lately.

Megasteel has been plagued with high borrowings. For its FY10 ended June, Megasteel posted a profit after tax of RM98.04 million from RM3.53 billion in revenue. However, the company had negative reserves amounting to RM146.56 million.

The company had non-current assets amounting to RM2.8 billion and current assets worth RM1.71 billion. On the other side of the balance sheet, it had current liabilities amounting to RM3.28 billion while its non-current liabilities stood at RM785.41 million.

According to its website, Megasteel was set up at a cost of RM3.2 billion in Banting, Selangor, which could explain the high debt levels. It has an electric arc furnace utilising scrap iron and hot briquetted iron with an annual production capacity of 3.2 million tonnes.

Part of Cheng’s grand plan includes the setting up of a blast furnace, which will considerably reduce his operating costs, produce higher quality steel, and make Megasteel a viable business.

However, the cost of setting up a blast furnace, which Lion began in 2008 and is still being built in Banting, Selangor, is estimated to be around US$1 billion (RM3.13 billion).

Hence Cheng’s need for a foreign party to come in, as the funds obtained are likely to be ploughed back into Megasteel for the blast furnace. Other than Megasteel, other steel assets under the Lion group include the flagship Amsteel Mills Sdn Bhd, Antara Steel Mills Sdn Bhd which operates in Pasir Gudang, Johor, Bright Steel Sdn Bhd as well as a hot briquetted iron plant in Labuan.

Amsteel Mills, Antara and Bright Steel all focus on long steel products, generally used in construction.

Cheng and Megasteel have also been at loggerheads with downstream steel players.

Earlier this year Megasteel’s petition for the government to impose an additional 35% duty on imported hot rolled coil, over and above the existing duty of 25%, thus making the import tax on hot rolled coil steel 60%, was quashed.

This new import duty, if imposed, would have worked as a protection mechanism for Megasteel, the only flat steel producer in the country.

The current deal is that downstream industry players are required to acquire their flat steel products from Megasteel, and can only source elsewhere or import if the required items are not manufactured by Megasteel.

Early last month, The Edge Financial Daily reported that Megasteel had petitioned the government to impose a 15% import tariff on all flat steel products, a move that the downstream players opposed.

Interestingly enough, last Friday night, Lion Corp announced a proposal to issue up to 950 million of RM1 par value shares, as part of a proposed debt settlement scheme, as well as a capital reconstruction exercise.

The company explained that the RM950 million was specifically for Megasteel’s creditors, who would receive shares in Lion Corp, on a basis of 20 sen for every RM1 owed.


This article appeared in The Edge Financial Daily, December 5, 2011.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Lion declines on plan to issue new shares

Lion Corp, a Malaysian steel producer and builder, fell the most in almost four months in Kuala Lumpur trading after saying it may issue new shares to raise RM950 million to settle debt owed by its 79 percent-owned Megasteel Sdn Bhd subsidiary.

The stock fell 7.9 percent to 17.5 sen at 9:03 a.m. local time, set for its biggest decline since Aug. 8.

It also plans a one-for-five share consolidation, the company said in a statement. -- Bloomberg



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Lion Corp’s losses widen

KUALA LUMPUR: Lion Corp Bhd’s net loss ballooned to RM97.35 million or 5.12 sen a share for 1QFY12 ended Sept 30, from the loss of RM56.38 million registered in the corresponding period last year.

The widening loss was despite revenue gaining by about 29% to RM675.63 million during the quarter from RM525.16 million recorded in the same period last year.

Lion Corp said the higher prices of raw materials and an unrealised foreign exchange loss of approximately RM20 million, due to the weakening of the ringgit against the greenback, resulted in a net loss position during the quarter.

With weak earnings, the group’s operating cash flow had also turned negative, as the group reported an operating loss before working capital of RM21.24 million for the three-month period from a profit of RM18.28 million previously.

Also worth noting is the deteriorating financial position of the group. In terms of current liquidity, the group’s current liabilities of RM3.52 billion (RM966.23 million in short-term debt obligations and RM2.55 billion in payables) as at Sept 30, far outweighed current assets of RM1.23 billion (RM791.8 million in inventories and RM391.5 million in receivables and cash). Lion Corp remains debt heavy with total debt at RM2.81 billion versus cash of RM141.2 million.

Total equity stood at only RM189.1 million as at Sept 30.

“International steel prices remained weak while the local demand was adversely impacted due to the dumping activities by foreign exporters,” Lion Corp said in an announcement to Bursa Malaysia, referring to the influx of cheap imported hot rolled coils (HRCs) that had caused its unit Megasteel Sdn Bhd to lose significant market share here.

Compared with the preceding quarter, group revenue had also sunk 34.3% to RM675.63 million from RM1.03 billion in 4QFY11 ended June 30.

Lion Corp said the operating environment for the local flat steel industry was expected to remain challenging due to persistent dumping activities by foreign exporters.

“The group will continue to work closely with the government to address the problem of excessive imports at dumping prices, and assist in the formulation of a supportive environment for the local steel industry to grow, upgrade and expand in an orderly manner,” it added.

Lion Corp holds 79% of Megasteel, the country’s sole manufacturer of HRCs, with its affiliate Lion Diversified Holdings Bhd holding another 21% stake.

Megasteel had recently petitioned to the government to impose an additional 35% duty on imported HRCs, but this was rejected due to negative feedbacks from downstream players.

Subsequently, the company had lobbied for a reduction in import duty on certain flat steel products from 25% to 15%, but with the removal of duty exemptions.
Its latest request is still being reviewed by the government.


This article appeared in The Edge Financial Daily, November 23, 2011.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Removal of duty exemptions to block import loopholes

KUALA LUMPUR: Megasteel Sdn Bhd has defended its proposal to the Ministry of International Trade and Industry to impose import tariffs on steel products, saying that “the proposal to reduce the import duty and replace duty exemption with duty drawback covers the entire flat steel sector and will help all flat steel producers to compete more effectively”.

The Edge Financial Daily reported last week that Megasteel had proposed a reduction in import duty from the existing 25% to 15% or RM300 per tonne, whichever is higher, on all flat steel products combined with the abolishment of duty exemption.

In an emailed statement, Megasteel clarified that flat steel in the proposal referred to hot-rolled coils or HRC (HS codes 7208 & 7211), cold-rolled coils or CRC (HS codes 7209 & 7211), coated coils like galvanised iron, electro-galvanised and coloured sheets (HS codes 7210 & 7211) and lastly pipes and tubes (HS codes 7304, 7305, 7306 & 7307).

“There should be the consideration that duty exemption will not be granted with the reduction in duty in order to plug the loopholes in the current system whereby there is rampant importation of HRC, CRC, coated coils and pipes on a duty-free basis from many non-Asean countries into Malaysia,” the company said last Friday.

In justifying the increased protectionism, Megasteel said following the termination of the safeguard petition for HRC by Megasteel, the government agreed to explore other options to assist the local flat steel products industry. To-date, it said five licences to produce HRC have been issued, but only Megasteel has implemented its project.

Megasteel has proposed that a duty-drawback system be reinstated, instead of duty exemption, to assist manufacturers that import and process for re-export.

“The duty-drawback system is time tested and being used by other industries and can be in the form of cash or bank guarantee. For the industries that will not be granted duty exemption, the impact will be minimised with additional measures to assist them,” Megasteel argued, but did not provide specifics on the additional measures.

“Of the one million tonnes of HRC imported into Malaysia last year, about 400,000 tonnes were from Taiwan, 200,000 tonnes from Japan and about 100,000 tonnes from South Korea. Of these imports, about 70% are within the range that we can produce,” said Megasteel, citing a report by the Malaysian Iron and Steel Industry Federation at a recent steel conference.

“The effect of the withdrawal of duty exemption on industries will be minimal if every effort is made to use local materials,” Megasteel said.

Megasteel is 78.9%-owned by Lion Corp Bhd with the balance held by Lion Diversified Holdings Bhd. Lion industries Corp Bhd has substantial holdings in both Lion Diversified and Lion Corp.


This article appeared in The Edge Financial Daily, November 8, 2011.

Misif against Megasteel’s proposed 15% levy

KUALA LUMPUR: The Malaysian Iron and Steel Industry Federation (Misif) is opposing Megasteel Sdn Bhd’s proposed reduction in import duty from the existing 25% to 15% or RM300 per tonne, whichever is higher, on all flat steel products combined with the abolishment of duty exemption.

“Misif, after consultation with its members, rejected Megasteel’s proposal and has conveyed its position to Miti (Ministry of International Trade and Industry) during the meeting between Miti and Misif,” the steel association said in a statement.

Misif was responding to The Edge Financial Daily’s front page report yesterday.

Flat steel products include hot rolled coil, cold rolled coil, coated sheets, pipes and tubes.

Misif president Chow Chong Long told the financial daily that there would be both winners and losers should the proposal go through.

The reduction in duty from 25% to 15% would be welcomed, but the abolishment of duty exemption could be detrimental to many sectors of the downstream flat steel players.

Exporters and steel players that depend on imported steel grades which are not produced locally could be adversely affected.

To allow exporters to remain competitive, Megasteel has proposed to have a duty drawback principle implemented for re-exporters.

“While the duty drawback system will reduce the possibility of abuse by importers, it adds a big financial burden to the exporters,” Chow said.

On the other hand, he pointed out, “The duty drawback will have an impact on the cash flows of businesses. They will have to pay more upfront for their raw materials and wait until they actually export the goods to reclaim the duty paid.”

“Megasteel, being the sole producer of hot rolled coil (HRC), is also a major part of the flat steel value chain and Misif would like to see a win-win solution for the upstream, mid stream and downstream,” he added.

It is important to note the current levy of 25% and Megasteel’s proposal will only affect imports from non-free trade agreement nations (NFN). Since Malaysia is part of the Asean Free Trade Agreement (Afta), imports by Asean members are not taxed.

Chow added that the biggest concern for Malaysian steel producers is China, which has become a threat since the Asean-China FTA.

MIDF Research released a report on Lion Industries Corp Bhd in which it downgraded the steel player to a “trading sell” on the expectation of negative earnings growth this year and weak industry fundamentals.

Lion Industries is the holding company of Megasteel.

The report entitled “The lion is trapped” revised the target price for Lion Industries down to RM1.12, below its closing price of RM1.53 yesterday.

The stock has fallen 24.26% year-to-date compared with the FBM KLCI’s 5.09% decline.

MIDF expects negative earnings growth due to the declining price trend for long steel products and slowing demand in both domestic and export markets.

“Currently, long steel prices are trending downwards with both billet and bar prices having declined 6.2% month-on-month and 9% m-o-m respectively,” the report said.

It also pointed out that contractors which use steel products for construction have also adopted a wait-and-see approach, keeping their inventories low on the expectation of a further decline in steel prices.

The blast furnace joint venture (JV) proposed in March by the Lion Group worth RM3.22 billion has yet to materialise, it added.

Partners of the JV, which include Lion Forest (20%), Lion Industries (29%) and Lion Diversified (51%), are on hold pending shareholders’ approval for a corporate guarantee on a RM2.3 billion loan from China Construction Bank

Shareholders were initially supposed to meet to approve the guarantee of the loan facility earlier this year on March 3. On Monday, the group announced that the date would be extended to March 2 next year.


This article appeared in The Edge Financial Daily, November 4, 2011.

OSK maintains 'neutral' call on steel stocks

OSK Research is cutting its fair value for steel firms across the board, citing their below average outlook amid the volatile market as a factor.

The steel stocks are currently offering limited price upside, the research house said, adding that it has placed a "neutral" call on most counters, except Perwaja Holdings Bhd and Kinsteel Bhd.

For Perwaja and Kinsteel, it has maintained its 10 per cent discounted cash flow valuation for the potential iron ore mine as well as "buy" and "trading buy" recommendations, respectively.

Although no official agreement has been signed to date, Menteri Besar of Terengganu was reported to be ready to consent to Perwaja’s application to mine ore in Bukit Besi.

OSK said the sluggishness in the economy also suggested that its earlier anticipated mergers and acquisitions in the sector might now take longer to materialise.

News that Lion Group is liquidating its steel assets has dragged on following a series of negative developments in the European Union and United States, it said.

"Although negotiations are ongoing and there are at least four interested buyers, we suspect the conclusion of such deal may be delayed as buyers may take up their time in bargaining for better pricing amid a weak economic backdrop," OSK said.

OSK also said that the possibility of the Lim family selling 10 - 15 per cent stake in Ann Joo is fading as the share price has fallen too far from the ideal price tag.

The research house is also generally bearish on steel demand, which may potentially be dampened by a weak economic outlook but believes that Asia’s steel market may hold up better than in other parts of the world.

On the local front, various government mega projects to be rolled out under the Economic Transformation Programme will boost the country’s steel requirements, particularly long steel products.

OSK also foresees the Mass Rail Transit (MRT) and the 100-storey Warisan Merdeka as the two projects that may substantially spur steel demand. -- Bernama

Megasteel eyes steel import duty?

KUALA LUMPUR: Megasteel Sdn Bhd is believed to be lobbying for a 15% levy on steel imports across the board from non-Asean countries, according to industry sources.

“If this proposal goes through, it will irreparably damage the (downstream) steel industry in Malaysia. Why would anyone want to do business in Malaysia?” said an industry source.

Industry sources are not happy with Megasteel’s new proposal, which they claim will tax imports of all steel products, even those not produced by Megasteel.

A unit of the Lion group’s flagship Lion Corp Bhd, Megasteel is the country’s sole manufacturer of flat steel products, producing hot rolled and cold rolled coils.

Bursa Malaysia-listed Lion Corp owns 79% of Megasteel while another Lion group listed entity, Lion Diversified Bhd, holds the remaining 21% stake.

To recap, Megasteel had in May filed a safeguard petition to seek an additional 35% import duty on hot rolled coils (HRC), which would bring the total duty payable on HRC up to 60%.

The new proposal of a 15% import duty is not in the nation’s interest, the source said.

“Almost every industry uses steel. It is used in the automotive industry, in manufacturing and construction. Everyone will lose out if this goes through.”

A player from the steel industry who supports the liberalisation of the steel industry told The Edge Financial Daily, “Protectionism is very unhealthy. We must look at the whole value chain, the growth of the whole industry and protect everyone’s interests. Not just the well-being of one company.”

The Edge Financial Daily was unable to reach the International Trade and Industry Ministry for comment on the progress of the discussion on the proposed levy.

The country's sole manufacturer of flat steel products, Megasteel Sdn Bhd is believed to be lobbying for a 15% levy on steel imports across the board from non-Asean countries.

Global conditions of late have been unfavourable to Megasteel, noted an analyst.

“While iron ore prices have fallen, steel prices have fallen even further. Megasteel’s costs may have fallen giving them some reprieve but overall, their net margins would have fallen,” said the bank-backed analyst.

“The fall in prices has been due to softening demand. China, for example, has been slowing down its property market, which has in turn reduced appetite for steel used for construction. Manufacturing has also been slowing down in tandem with poor global economic conditions.”

He pointed out that Megasteel continued to make losses despite the lack of competition due to safeguards by the government and Megasteel’s monopoly.

“Megasteel has not been profitable even though there has been a 25% levy on HRC, its primary product. Also, Megasteel is essentially the sole HRC producer in Malaysia. This could be indicative of its uncompetitive cost structure.

“Furthermore, Megasteel uses the the electric-arc furnace, which produces lower grade steel products.

“If the proposed import tariffs on steel do not go through, Megasteel may not be able to compete with imports,” noted the analyst.

The situation is further exacerbated by the fact that Megasteel’s products are mostly sold in the local market.

An industry player said: “Nobody wants Megasteel to suffer. We want Malaysia to have its own steel makers. We just want the industry to be fair. A 15% levy on all steel imports will cripple the industry. A solution will need to be discussed across the value chain that can benefit everyone.”

“Unfortunately, it doesn’t seem like Megasteel is ready to talk,” the industry source added.

Megasteel is undertaking a RM3.2 billion blast furnace project that will be able to produce about 2.07 million tonnes of liquid hot metal a year, of which 1.57 million tonnes could be converted into slab for sale on the open market.

“They are trying to rope in foreign partners and secure a loan from Chinese bankers, but the economic climate is not conducive,” said an analyst.

If global economic conditions worsen, Megasteel could be affected by a collapse in demand for steel, which will drive steel prices down.

“Given the present situation, unfavourable global economic conditions will have an adverse impact on Megasteel,” the analyst added.

He also noted that Megasteel has a high level of debt.

A summary of Megasteel’s financial information for the year ended June 30, 2010 revealed it had liabilities of RM4.06 billion and RM146.6 million in accumulated losses.

Meanwhile, Lion Corp reported a net loss of RM45.1 million for 4QFY11 ended June 30 compared with a net profit of RM60.4 million a year ago.

That brought full-year net loss to RM234.4 million, more than double FY10’s loss of RM112.8 million.


This article appeared in The Edge Financial Daily, November 3, 2011.