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Home / 2014 Annual Report: Managing Director/CEO’s Statement

FY2014 OVERVIEW

The domestic steel sector faced a mixed bag of fortunes in the year under review. For one thing, demand for steel products throughout Malaysia remained firm, on the back of robust construction activity arising from various mega projects, especially in the Greater Klang Valley.

On the other hand, steel manufacturers grappled with higher operating expenditure, mainly through increased wages and escalating electricity tariffs. The sector also had to contend with elevated imports of steel bars from China, which prompted the Ministry of International Trade and Industry (MITI) to launch a preliminary investigation on the alleged dumping activities in September 2014.

Fortunately, Masteel was largely shielded from the adverse impact of these negative developments, as our proximity to major construction activity in the Klang Valley enabled us to reap the benefits of higher utilisation rates, enhanced production efficiency, and optimized costs.

The culmination of these factors propelled Masteel to reach its highest -ever revenue of RM1.5 billion, with sales to the domestic market contributing RM1.4 billion or 97.1% of FY2014 revenue. Notably, domestic revenue grew 11.2% year-on-year compared to RM1.3 billion previously.

Despite the keener competition in the international market owing to the prevailing economic uncertainty, export markets still contributed RM41.9 million in sales in FY2014, decreasing from RM103.9 million a year ago.

Undoubtedly, the year under review has laid a strong foundation for the next chapter of our growth story.

PROSPECTS

The revised National Budget 2015 announcement reiterated the Malaysian Government’s commitment to implementing key infrastructural projects in the coming years. About RM48.5 billion has been allocated for public CAPEX spending, including the extensions of LRT networks, upgrading of existing road transportation systems, and construction of major expressways, KVMRT and rail networks such as the High Speed Rail.

These advanced transportation projects are not only necessary to support the country’s increasing population, but also commensurate with the citizens’ demands for increasing mobility and enhanced connectivity alongside the nation’s economic development.

The rate of population growth also naturally spurs the development of residential properties, particularly affordable homes for the mass market. To this end, both the public and private sectors have continued their property development initiatives to meet the sustained demand; thus creating a positive outlook for steel bars in the foreseeable future.

The Group’s cost structure is also expected to be optimised further, in light of the gradual decline in scrap prices and suspension of price revisions on natural gas in the current financial year.

At the same time, the stabilizing international prices of iron ore and the China Government’s directives for the reduction of steel production are largely expected to result in moderation of prices and quantity of steel imports into Malaysia.

Overall, we believe that the future bodes well for industry players such as Masteel, as we have honed our production cost-efficiencies, upheld high standards of product quality, and established a track record of timely delivery.

GROWTH STRATEGIES

Against this favourable backdrop, the Group remains as steadfast as ever in carrying out our plans to tap into the tremendous growth potential in the steel sector.

It is evident that we have spared no effort to continuously expand our steel production capacity. To this end, we have made tremendous progress in the construction of our second rolling mill in Bukit Raja, Klang with annual capacity of 200,000 metric tonnes (MT), in which we have invested RM100 million in total capital expenditure.

Upon its targeted commencement of production trials in the second half of 2015, the new rolling mill upon its full commissioning will boost the Group’s overall steel bar production capacity from 450,000 MT per year to 650,000 MT annually.

Masteel’s strategic decision to expand our downstream steel bar production capacity allows us to increase production of higher-premium steel bars, and is expected to play a key role in enhancing the Group’s profitability in a sustainable manner going forward.

Furthermore, the Group will intensify our collective efforts to achieve even-higher levels of operational efficiency, so as to sharpen our competitive edge.

Finally, as one of the founding members of the Malaysian Steel Association (MSA), Masteel endeavours to continue working closely with MITI, Malaysian Steel Institute (MSI) and Malaysian Industrial Development Authority (MIDA) to put in place policies that will ensure fair competition and a dynamic Malaysian steel manufacturing sector.

We believe that our achievements to date bear testament to our tremendous potential in the future, and are poised to reinforce Masteel’s position as a key player in the Malaysian steel industry.

CORPORATE UPDATES

• Joint-Venture Agreement with KUB Malaysia Berhad

The Group remains positive of realizing the proposed Iskandar Malaysia Commuter rail project via its joint-venture company Metropolitan Commuter Network Sdn Bhd.

In January 2015, Masteel had submitted an updated project proposal to the Ministry of Transport for its review. The Ministry of Transport had further confirmed that the proposed project will complement the numerous rail projects in Johor such as the ongoing Gemas-Johor Baru double tracking project, the KL-Singapore High Speed Rail, Johor-Woodlands, Singapore Rapid Transit System (RTS) and the Bus Rapid Transit (BRT) system and complies to the Iskandar region transport master plan.

The Group is expected to retable its proposal to the Economic Council (EC) in 2015.

We have regularly held productive discussions on the Iskandar MRT Project with various key stakeholders, and are heartened that all parties are committed towards its eventual success. Further updates on the project’s progress will be made via announcements to Bursa Malaysia Securities Berhad.

AWARDS

Corresponding to our operational excellence, Masteel continued to shine in the corporate limelight by being awarded the “Best Brands Signature Award 2013-2014 in Manufacturing – Steel” by The BrandLaureate.

Additionally, Masteel was ranked 75th in the list of “Top 100 brands in Malaysia 2014” by BrandFinance plc, uk, which valued the Masteel brand at USD26 million, equivalent to approximately RM98 million.

BrandFinance is the world’s leading independent brand valuation and ratings firm. The brand rating is based on detailed analysis of data obtained from public and other sources, which is reviewed by an expert panel of brand analysts and consultants.

Inasmuch as we are honoured by these accolades, we recognise that such accomplishments would not have been possible without the fervent dedication and support of all our stakeholders. We appreciate your unwavering confidence in us, and look forward to an enduring partnership.

Dato’ Sri Tai Hean Leng @ Tek Hean Leng
Managing Director/Chief Executive Officer

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