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[The Star] More project rollouts likely

Wednesday, January 12th, 2022

KUALA LUMPUR: A gradual improvement in contract flows in the construction sector is likely this year as the country moves towards the endemic phase from the Covid-19 pandemic stage.

Hong Leong Investment Bank Research (HLIB) said a recovery in private sector opportunities and ongoing rollouts of existing projects like the East Coast Rail Link, Pan Borneo Highway Sabah and Sarawak, Johor Baru-Singapore Rapid Transit System and Central Spine Road project will support job flows in 2022.

Additionally, there is also the potential rollout of the Sarawak Metro which costs about RM6bil.

Note that domestic contracts to listed contractors amounted to RM6.3bil in the fourth quarter (Q4) of last year, boosted by RM1.6bil worth of awards from water and solar projects, notably the Rasau Water Scheme (RM896mil) and the fourth cycle of Large Scale Solar projects (RM571mil).

Notable contract wins in Q4 of 2021 included package two and three of Rasau to Taliworks Corp Bhdl, the Sabah Sarawak Link Road package to Kimlun Corp Bhd (RM780mil) and the aerotrain project in the Kuala Lumpur International Airport to Pestech International Bhd (RM743mil).

Meanwhile, there was only one foreign contract awarded during the quarter which involved the upgrading of various substations in the Philippines to Pestech International Bhd for a contract sum of RM157mil.

“The Home Ownership Campaign (HOC) and low interest rates which lifted property sales in 2021, could see a ramp up in private sector contract awards considering the repeated award delays in 2021,” HLIB pointed out.

However, the downside to this is the dampening of sentiment from the expiry of the HOC, interest rate hikes and rollout delays due to high materials price.

On a year-to-date basis, contracts awarded in 2021 were higher by 63% largely due to the low base effect as 2020 saw lockdowns imposed in the country.

In 2021, HLIB noted that stronger water, affordable housing, solar and road projects such as public sector funded jobs were seen while private sector contracts remained flattish due to the continued restrictions which dented rollout optimism.

The research house has maintained its “neutral” call on the construction sector given the fluidity of the looming general election, which could weigh on sector sentiment with investors adopting a wait-and-see approach.

“Sector valuations are on the lower end at 12.9 times price-to-earnings ratio on the next 12 months earnings per share (five-year average) and 0.65 times price-to-book value (minus one standard deviation five-year range).

“Recent reports on critical projects, including the Mass Rail Transit line three, are encouraging but we remain cautious on the timeline and overall sector earnings execution amid the ongoing virus spread,” it added.

2013 Annual Report: Managing Director/CEO’s Statement

Wednesday, July 9th, 2014

FY2013 Overview

Amidst the tough operating environment of 2013 – where the global steel industries grappled with reduce operating margins. I am pleased to note that Masteel stood on solid footing in FY2013.

Our established position in the Klang Valley and strong track record for timely delivery of quality steel products placed us in favourable position to meet rising steel bar requirements in the domestic market. Notably, the Group effectively captured higher market share of steel bars in the year, as the construction of major infrastructural projects such as Klang Valley MRT and LRT extensions were being progressively implemented.

This enabled the Group to register RM1.38 billion in revenue for FY2013, increasing 4.8% from previous year and the highest in the Group’s corporate history.

Unsurprisingly, the domestic market represented 92.4% of FY2013’s revenue, with RM1.27 billion in sales. This was 16.6% higher than RM1.09 billion a year ago.

The balance RM103.85 million of FY2013 group revenue was contributed by export sales, reducing from RM221.74 million a year ago, on the back of keener international competition.

Nonetheless, Masteel kept its focus on honing our strategic advantage on home ground, through our constant efforts to improve the operational efficiency and utilisation rate of our plants, thus enhancing our operating income to achieve better profitability.

Masteel ended FY2013 positively with strong net profit of RM27.01 million.

Growth Strategies

As Malaysia surges forward as a rapidly-developing country, we foresee that the domestic market will be in great need of steel bars for the purpose of infrastructure and housing construction.

Over the years, Masteel has progressively pursued the expansion of our production capacities to better meet the demands from ongoing developments locally and in the region.

In FY2013, we expanded the production capacity of our billet plant in Bukit Raja, Klang by 50,000 metric tonnes (MT) to reach 650,000 MT per year, from 600,000 MT previously. This upgrading work will continue for our meltshop to reach a production capacity of 700,000 MT steel billets per year, which is scheduled for completion at the end of 2014.

Furthermore, we are also in the process of constructing a second rolling mill in Bukit Raja, which is slated to be ready by mid-2015. This will take our annual total steel bar capacity from 400,000 MT in FY2013 to 550,000 MT in 2014.

We are confident these strategies would become key pillars that will strengthen the Group’s profits.

Corporate Updates

  • Joint-Venture Agreement with KUB Malaysia Berhad

Masteel remains committed to the joint-venture company with KUB Malaysia Berhad, Metropolitan Commuter Network Sdn Bhd (MCN), to co-operate in pursuing the rail transit network project interlinking the Iskandar Development Region and Woodlands, Singapore.

MCN is in active discussions with various Federal & State government ministries and agencies, as well as financial institutions with regard to the next steps for the project.

It should be noted that the MCN project involves extensive coordination with multiple stakeholders, therefore a project of this scale would understandably incur considerable time for planning and implementation. Further updates will be made via announcements to Bursa Malaysia.

Prospects

The Budget 2014 announcement aptly demonstrates the Malaysian Government’s commitment to continue rolling out of major infrastructure projects and iconic developments such as the KVMRT, LRT and highway extensions, High Speed Rail, Bandar Malaysia as well as Tun Razak Exchange.

The Government also reiterated its stance to provide affordable homes, resulting in the construction of approximately 80,000 affordable residences nationwide under PR1MA, as well as the provision of incentives for property developers to build homes catering to mass market.

The ongoing transformation of the Greater Klang Valley region into a world-class metropolis paints a robust outlook for the construction and property development sectors in Malaysia, translating into buoyant prospects for steel products manufactured by Masteel Bhd.

Our factories’ strategic location in the Klang Valley marks a proven competitive advantage and places us within the thriving hub where the major anticipated uptake in steel bar demand is centered.

Our RM100 million investment in capital expenditure to build up new capacity in our core business will allow us the flexibility to meet existing and expected future demand, as well as pave the foundation to expand our market share.

Even so, our management team is mindful of the challenges in the industry, including rising electricity tariffs and other costs, and will strive to enhance cost-efficiency in all our operations. We are optimistic that these measures will go a long way towards not only mitigating the higher-cost environment but also improving our industry position.

All said, we are confident of our future prospects, and will aim to continue playing our role as a prominent player in
the Malaysian steel industry.

Awards

Bearing testimony to our brand excellence and shareholders’ value creation in Malaysia’s steel manufacturing sector, Masteel was awarded the “Best Brands Awards 2012-2013 in Manufacturing – Steel” by The BrandLaureate. This was accentuated with the concurrent receipt of the “Brand Personality Awards 2012-2013”, cordially accepted in my professional capacity as Masteel’s Managing Director/Chief Executive Officer.

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

2013 Annual Report: Chairman’s Statement

Wednesday, July 9th, 2014

Dear Shareholders,

Since inception in 1971, Masteel has demonstrated its ability not only in the scaling up its manufacturing operations, but also in fine-tuning its business model and technological advantages. This year marks Masteel’s 42 years of steel bar manufacturing par excellence.

On behalf of the Board of Directors for Malaysia Steel Works (KL) Bhd (Masteel or the Group), I am honoured to present you the Group’s 2013 Annual Report and audited financial statements for the financial year ended 31 December 2013 (FY2013).

The steel sector witnessed a challenging FY2013, largely due to the over-supply of steel from China, which opened the doors to steel dumping issues all over the world including Malaysia.

However, the China-imported steel bars failed to make significant headway into the domestic market, with import quantities remaining at low levels throughout the year. This was attributable to the preference of Malaysia’s construction industry to source steel bars from reliable local manufacturers, owing to quality requirements, timely on-demand delivery and storage constraints.

I am proud to state that Masteel, with strategic presence within the Klang Valley, has secured a significant share of increasing steel demand from the numerous public and private sectors’ infrastructure and property development projects. These included high-impact mega projects, such as the light rail transit (LRT) extension, Klang Valley Mass Rapid Transit (MRT) train network, and other iconic developments.

Moreover, we continued to benefit from the relatively-stable prices of our raw material of scrap metal, thereby shielding us from the price volatility of iron ore.

I am pleased to acknowledge our visionary management team, who endeavoured to improve our operations’ efficiency and meet the industry demands, thus steering Masteel towards another remarkable year.

FY2013 Financial Highlights

Against this backdrop, we charted a good year with four consecutive quarters of profitable performance in FY2013. This resulted in Masteel achieving record revenue of RM1.38 billion, a 4.8% increase from RM1.31 billion in FY2012. The topline increase is commendable in view of the challenging industry environment, and demonstrates the mitigating effect of higher sales volumes over lower average selling prices.

The higher demand for our steel bars resulted in overall higher capacity utilisation allowing Masteel to benefit from the economies of scale and positive operating income. This enabled us to reap 16.3% higher profit before tax of RM28.96 million in FY2013 compared to RM24.90 million previously. The Group ended the year with strong net profit of RM27.01 million, noting an 11% increase from RM24.35 million in FY2012.

Basic earnings per share was 12.38 sen in FY2013 versus 11.51 sen previously, based on a share capital of 222.00 million shares of RM0.50 par each.

Masteel’s balance sheet remained healthy throughout FY2013, as shareholders’ equity increased to RM553.28 million from RM525.88 million previously. The Group’s FY2013 cash and cash equivalents stood at RM60.40 million, a 10.5% rise from FY2012’s RM54.68 million. Total borrowings increased marginally to RM289.21 million from RM283.73 million a year ago.

With this, the Group improved its net gearing to 0.41 times in FY2013, from 0.44 times previously. This allows us the flexibility to implement any additional business expansion, as and when such opportunities arise.

Dividends

Masteel has consistently paid dividends since listing in 2005.

The Group declared its first interim single tier dividend of 0.5 sen per share in respect of FY2013, which was paid out to shareholders on 11 October 2013.

Subsequently, the Board declared a second interim single tier dividend of 0.5 sen per share, which was distributed on 12 May 2014.

Furthermore, the Board has proposed a final single tier dividend of 0.5 sen share for shareholders’ approval at the forthcoming Annual General Meeting.

If approved, this will bring the Group’s total dividend to 1.5 sen per share in respect of FY2013, amounting to RM3.28 million in dividend payout.

Corporate Social Responsibility (“CSR”)

Over the years, Masteel has committed to various welfare activities, for the purpose of enhancing the well-being of our community.

In FY2013, the Group reiterated our support for the “Meals-on-Wheels” programme organised by Ti-Ratana Penchala Community Centre, a non-profit charity organisation. Masteel sponsored the operational expenses of the van used to carry out humanitarian activities, including delivering groceries to the poor, conducting free health checks for refugees, and bringing cheer to festive celebrations held in welfare centres.

Additionally, we were also involved in the upgrading of a local school in Serdang, Selangor. Masteel assisted the school by providing advisory services in the aspects of design, construction and cost planning. The Group also contributed financial support towards the school building fund.

We view these efforts as small yet significant steps towards enhancing the well being of the society at large.

Corporate Governance

The Board of Directors of Masteel is constantly mindful of and wholly committed to implementing best practices in corporate governance. As a Group, we look to achieve business sustainability and profitability, towards continuously improving and protecting shareholder value.

To this end, the Board endeavours to ensure that employees uphold the highest possible standard within every aspect of Masteel’s operations. The measures undertaken by the Group in this respect are detailed in the Corporate Governance Statement of this Annual Report.

Appreciation

I would like to take this opportunity to express my deepest gratitude to my fellow Board members, the management team and all employees working in Masteel. The Group’s achievements today are the fruits of our collective hard work, dedication and diligence.

I would also like to extend my highest appreciation to our valued shareholders, business associates, customers, regulatory bodies and many others who have partnered the Group throughout FY2013. We look forward to have your continuous support for the years to come.

Thank you.

Dato’ Ikhwan Salim Bin Dato’ Haji Sujak
Chairman

Quarterly Earnings: Archive 2012

Wednesday, July 10th, 2013
Quarterly Summary (RM’mil) 2010 2011 2012
Financial Year Ended 31 Dec
1Q
2Q
3Q
4Q
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Revenue
192.1
235.7
285.0
292.0
278.4 338.0 300.3 336.7 339.9 334.1 312.9 315.2
PBT 6.7
8.3
5.4
9.7
6.8 15.4 17.5 (4.8) (4.9) 18.9 7.6 2.9
PATMI
6.4
8.1
4.8
9.0
6.2 15.5 16.2 (13.3) (4.9) 19.0 7.0 2.7
Basic EPS (sen)
3.26
4.06
2.35
4.35
2.94 7.35 7.69 (6.33) (2.32) 9.02 3.34 1.29

1Q12 Financial Results

2Q12 Financial Results

3Q12 Financial Results

4Q12Financial Results

 

Archives

Quarterly Earnings: Archive 2011

Quarterly Earnings: Archive 2010

2012 Annual Report: Managing Director/CEO’s Statement

Tuesday, July 9th, 2013

Financial Year 2012 Overview

In a year impacted by lower selling prices and the import of cheaper steel products, Masteel remained one of the few domestic steel players who displayed resilience.

Furthermore, for FY2012, the Group recorded a historical achievement, our best-ever revenue to date, when we posted a 4.7% increase in topline to RM1.3 billion. This was achieved mainly due to higher sales volume in the local market.

The rollout of many Economic Transformation Programme (“ETP”) initiatives during the year under review has been a growth catalyst for the local construction industry, which – in turn – spurred demand for steel bars.

Exports, however, remained challenging, contributing less to topline, RM221.7 million in FY2012 versus RM434.2 million previously. This was largely due to heavy competition in the overseas marketplace.

Masteel’s continuing investments in new technologies and processes allowed us to weather the turbulence within the steel sector relatively well. Additionally, a strong management team has also helped us side-step issues that have impacted negatively on other peers.

This allowed the Group to sustain a commendable net profit at RM24.3 million in FY2012, compared to RM24.4 million previously.


Growth Strategies

As Malaysia moves closer towards 2020, and its target of transforming itself into a developed nation, the demand for steel bars that are needed for nation-building projects can only trend upwards. As the countries around us continue to prosper and develop, steel bars will be needed for infrastructure upgrading works for some time to come.

To meet with this expected demand, Masteel invested approximately RM200.0 million to grow our meltshop capacity to 700,000 metric tonnes (“MT”) of steel billets per year from 550,000 MT previously. The upgrading of this facility in Klang, Selangor, is scheduled for completion in December 2014.

The Group is also building our second rolling mill adjacent to the meltshop. This new facility, which is slated to go operational in mid-2014, will boost Masteel’s annual steel bar production capacity to 550,000 MT from 350,000 MT currently.

These new capacities will allow the Group the flexibility to both meet existing and expected future local and regional demand, as well as to seek out new export destinations for our steel products.

Lastly, for FY2013 and beyond, Masteel will continue to seek out other synergistic opportunities that can enhance the Group’s core business so that we can bring additional value for our shareholders.


Corporate Updates

  • RM500.0 million Offtake Agreement with Trafigura Pte Ltd

On 27 June 2012, Masteel announced the signing of a RM500.0 million offtake agreement between the Group and the world’s second-largest commodities trader, Trafigura Pte Ltd, which will see us selling steel products to the latter over a three year period.

The agreement, which is expected to contribute positively to earnings from FY2013 onwards, will not only provide export income for Masteel but also see Trafigura taking up some of the Group’s new excess capacity.

  • MCN Receives Depot Land Offer

Masteel remains committed to our joint-venture (‘‘JV’’) with KUB Malaysia Berhad (“KUB Malaysia”), Metropolitan Commuter Network Sdn Bhd (“MCN”), to supply and operate a top-of-the-line rail transport network interlinking the various towns and cities within the Iskandar Malaysia economic corridor and Woodlands, Singapore.

The Group believes strongly in this RM1.3 billion proposal, which is being considered by the relevant Malaysian Government bodies, as it is expected to generate recurring income for the JV partners over a 37-year concession period.

A breakthrough was made on 6 November 2012 when MCN was offered a 14.3 hectare plot of land owned by Perbadanan Aset Keretapi (“PAK”) in Kempas, Johor, by the Ministry of Transport Malaysia (“MOT”) for the construction of the JV’s proposed Iskandar Malaysia commuter train depot.

MCN has submitted the necessary applications to PAK for the plot in question, which is seen as sufficient for the site of the depot.

On 18 December 2012, MCN received a letter from MOT to confirm its agreement to our project in Iskandar Malaysia.

  • Private Placement of Shares

On 9 November 2012, Masteel announced the private placement of up to 31.6 million shares of RM0.50 each, or approximately 10% of the Group’s issued and paid-up share capital.

Around 7.2 million shares were issued under this corporate exercise at an issue price of RM0.86 per share, which raised RM6.2 million for our working capital needs.


Prospects

Masteel is optimistic on the state of the local steel industry and the Group’s own prospects in 2013.

The initiatives by the Malaysian Government to curb the importing of certain cheaper steel products into the country is expected to improve the pricing of the domestic steel sector and enhance the income of the Company.

The estimated RM150.0 billion worth of ETP projects slated to rollout this year – such as the KL MRT, the Tun Razak Exchange, the Light Rail Transit (‘‘LRT’’) extension and the 1Malaysia People’s Housing (‘‘PR1MA’’) programmes – will drive the demand for high-tensile steel bars that is produced by Masteel.

For example, on 9 November 2012, Masteel won a RM6.7 million contract from the Mass Rapid Transport Corporation Sdn Bhd to supply Grade 500 high-tensile steel bars to several KL MRT sites – namely V1-Sungai Buloh, V2-Kota Damansara and V5-Cheras.

This was the Group’s first order for this particular ETP initiative and, since then, given our exemplary track record in producing high-quality steel bars, we have continued to supply to the project.

Additionally, we are optimistic of the regional demand for steel bars, which are required by Malaysia’s neighbours for their own nation-building initiatives. With Masteel’s CAPEX initiatives in place to expand our steel billets and steel bars production capacities, the Group will have the flexibility to tap into more opportunities within both the domestic and regional markets.

Our strategic location within the Klang Valley – where many ETP projects are rolling out and where we are close to an established land, sea and air transportation network – accords to Masteel distinct advantages.

Notwithstanding the bright prospects in the local market, we are certainly circumspect of the challenges ahead. This includes the state of the global economy, which can have a negative trickle-down impact on steel bar consumption.

However, given the strategies we have implemented, the strong fundamentals of Masteel and the positive overall outlook, FY2013 is expected to be a promising year for the Group.

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

2012 Annual Report: Chairman’s Statement

Tuesday, July 9th, 2013

Dear Shareholders,

On behalf of the Board of Malaysia Steel Works (KL) Bhd (“Masteel” or “the Group”), it is my pleasure to present to you the 2012 Annual Report and audited financial statements for the financial year ended 31 December 2012 (“FY2012”).

FY2012 was a challenging year for the Malaysian steel sector as a whole, hampered as it was by issues like lower average selling prices, volatile raw material costs and overcapacity in many types of steel products. The sector was further compounded by the economic woes and/or slowdowns being experienced by many markets around the world.

Masteel, however, was able to withstand many of these challenges. In fact, we remained in positive territory when compared with our peers.

The Group’s use of high-grade scrap metal – with its more stable pricing – and not iron ore as our feedstock meant that we were spared the fluctuations in the latter’s prices. We were also not impacted by the steel dumping issue, which hurt many manufacturers here, as the contentious import of steel products are not steel bars.

Additionally, our strategic location within the Klang Valley meant that we benefited from the growing demand for steel bars for many Economic Transformation Programme (‘‘ETP’’) projects – like the light rail transit (‘‘LRT’’) extension and the Klang Valley Mass Rapid Transit (‘‘MRT’’) train network – as well as for private sector property development projects.

Lastly, Masteel’s astute and dynamic management – and continuing investments in new technologies and processes to lower costs and improve efficiencies – have allowed the Group to react to opportunities that presented themselves as well as to weather the worst storms of 2012.

FY2012 Financial Highlights

Masteel’s fortitude during this challenging FY2012 has been rewarded by a historic milestone, the Group’s highest-ever revenue to date since our foundation in 1971. We were able to record revenue of RM1.31 billion, up 4.7% from FY2011’s RM1.25 billion, despite the lower average selling prices in the local market, which impacted many of our peers.

This success was mostly achieved on the back of increased volume sales domestically, which accounted for 83.1% of our total revenue, as we leveraged on our central location and solid reputation to provide steel bars for projects like the new Kuala Lumpur International Airport 2 (‘‘KLIA2’’) and Klang Valley MRT, amongst others.

As a result, Masteel was able to mitigate the adverse impact and, to a greater extent, reduce the negative market sentiments that hindered the domestic steel industry. This allowed the Group to sustain FY2012 profit before tax (‘‘PBT’’) and net profit of RM24.9 million and RM24.3 million respectively.

Basic earnings per share was 11.5 sen versus 11.6 sen previously.

Masteel’s balance sheet remains in a robust state. Shareholders’ equity rose 5.2% to RM525.9 million from RM499.9 million previously. The Group’s FY2012 cash and cash equivalents stood at RM48.0 million, up 52.0% from FY2011’s RM31.6 million. Total borrowings dropped 2.4% to RM283.7 million from RM290.8 million a year ago.

Our net gearing of 0.44 time – down from 0.49 time previously – allows Masteel the flexibility to undertake additional borrowings to fund further growth initiatives in the future.

In respect of the financial year ended 31 December 2012, the Group declared an interim dividend of 1 sen per share, or an 8.9% payout from our FY2012 net profit. This dividend was paid out to shareholders on 10 December 2012.

We have also proposed a final single tier dividend of 0.5 sen per share, subject to the approval of shareholders at Masteel’s forthcoming Annual General Meeting (“AGM”). If approved, this will take the Group’s dividend payout in respect of FY2012 to 1.5 sen per share, or RM3.27 million. This translates into a dividend payout ratio of 13.4%, one of the highest since our listing on the Main Market of Bursa Malaysia Securities in 2005.

Corporate Social Responsibility (“CSR”)

As an outstanding pillar of the community, Masteel believes in fostering, supporting and enhancing human dignity and welfare. We are a strong believer in upholding the fundamental principle that an all-encompassing holistic approach is needed to improve the well-being of our civil society.

As such, and as part of Masteel’s CSR activities for FY2012, the Group contributed back to society by assisting in the 15th Anniversary Charity Dinner organised by the non-profit Ti-Ratana Welfare Society, which was attended by the Prime Minister Dato’ Sri Mohammad Najib Tun Razak.

The gala dinner was undertaken to help raise funds for the construction of a four-storey, RM8.0 million centre for underprivileged children.

It is through efforts like these that Masteel hopes to make a difference to the society that we operate in.

Corporate Governance

The Board of Masteel is fully committed to the best practices of good corporate governance. We see that such commitment is the only way to enhance and protect shareholder value.

Hence, we adhere diligently to the highest standards of transparency in our day-to-day operations. The steps undertaken by the Group to ensure this are highlighted in the Corporate Governance Statement of this Annual Report.

Appreciation

I would like to take this opportunity to thank my fellow Board members, the management team and the more than 600 employees working for Masteel that have worked steadfastly together to drive the Group to where it is today.

I would also like to extend my deepest gratitude to Masteel’s valued shareholders, business associates, customers, regulatory bodies and many others who have supported the Group throughout FY2012. We hope that our strong relationship will continue to strengthen and prosper in FY2013 and beyond.

Thank you.

Dato’ Ikhwan Salim Bin Dato’ Haji Sujak
Chairman

2011 Annual Report: Chairman’s Statement

Monday, June 11th, 2012

Dear Shareholders,

On behalf of the Board of Directors (the Board), I am pleased to present to you the 2011 Annual Report and the audited financial statements of Malaysia Steel Works (KL) Berhad (Masteel or the Group) for the financial year ended 31 December 2011 (FY2011).

FY2011 was a turbulent year for the global steel sector, which experienced highs and lows throughout the year under review.

On one hand, global crude steel production grew by 6.8% or approximately 1,527 megatonnes (Mt), according to data from the World Steel Association, driven by improved activity in the automotive, appliance and other industrial sectors, which resulted in a rise in both shipments and average selling price overall.

Yet, on the other hand, volatility remained in the market and demand was impacted, especially in the last quarter, by negative factors like the Eurozone debt crisis, a slowdown in China’s property market and de-stocking initiatives undertaken by many on fears of increased uncertainty in the global economy.

FY2011 Financial Highlights

Despite the challenges in the steel industry, for the first time in our history, Masteel was able to post commendable FY2011 revenue growth of 24.7% to RM1.3 billion from RM1.0 billion a year ago, due mainly to overall higher sales volume of our steel bars and billets, and better export numbers.

In fact, export sales posted the highest growth rate, with contributions to total revenue shooting up 95.8% to RM434.2 million from RM221.7 million previously.

Demand in newer markets like Myanmar and Sri Lanka augmented traditional ones like Australia, Bangladesh, Fiji, New Zealand, the Philippines, Singapore, Thailand and Vietnam, and justified the Group’s on-going strategy to grow non-domestic sales.

Yet, regardless of that, the local market continued to be the bigger contributor to Masteel’s top-line, accounting for 65.4%, or RM819.2 million of FY2011 total revenue, expanding by a marginal 4.6% compared to that of FY2010.

Despite the healthy top-line growth, however, the Group faced challenges in its operations, such as increasing raw material prices, less favourable margins due to keen competition towards the end of the year, higher finance costs as a result of higher borrowings, as well as the impairment of RM4.0 million on an asset-backed security.

These factors resulted in a 16.4% drop in profit before tax to RM25.1 million and 12.7% lower net profit of RM24.5 million.

Basic earnings per share dipped to 11.7 sen versus 13.6 sen in FY2010, based on a share capital of 210.6 million shares of RM0.50 par each.

Our balance sheet remained healthy, with shareholders’ equity rising 4.5% to RM500.0 million from RM476.6 million, largely attributed to FY2011 profits.

The net gearing of 0.49 times was mainly due to higher borrowings of RM290.8 million or 12.7% up from the previous year, as a result of higher working capital requirement and capital expenditure. The gearing is still a comfortable level for us to undertake any additional expansion as and when needed.

To reward our loyal shareholders who have stayed with us throughout it all, the Board has recommended a first and final single tier dividend of 1 sen per share, or a 8.6% payout from Masteel’s net profits for the year under review.

This is also to anticipate a new rolling mill expansion project, whereby Masteel is expected to inject some capital into said project, which will commence its construction phase in the second half of 2012.

The proposed dividend is still subject to shareholders’ approval during the upcoming Annual General Meeting on 28 June 2012.

Corporate Social Responsibility (CSR)

Masteel acknowledges that, as an upstanding member of society, we have a role to play in the betterment of the people within the communities that we operate in.

To that extent, the Group has undertaken various initiatives throughout FY2011 to provide hope and charity to those in need. At the same time, we remain focused on making our working spaces a healthy and safe environment for our employees and will continue to do so in the foreseeable future.

One of CSR initiatives was Masteel’s contribution to the on-going Meals on Wheels programme organised by Ti-Ratana Penchala Community Centre, a charitable organisation.

Meals on Wheels was set up by the charity to provide cooked nutritious food to the needy as well as to victims of natural disasters.

For the programme, the Group jointly contributed to the purchase of a brand new 12-seater Toyota van with several well-wishers. In addition, we are also sponsoring the van’s operational expenses, which are estimated to cost around RM20,000 annually.

Masteel is very supportive of organisations such as Ti-Ratana Penchala Community Centre and their efforts to help the needy. Working together with them and others through our other CSR activities, we hope to build a better Malaysia for all.

Corporate Governance

As we look to achieve business sustainability and profitability, Masteel has never lost its adherence to corporate governance best practices. We have long accepted that it is a crucial step in creating and protecting shareholders’ value and we remain committed to its implementation Group-wide.

To that extent, the measures that we have undertaken are highlighted in the Corporate Governance Statement in this Annual Report.

Appreciation

On behalf of the Board, I would like to thank my fellow Directors, Masteel’s management team and all our employees who have helped the Group turn into the robust entity that it is today.

I would like to acknowledge wholeheartedly our valued shareholders, associates, business partners, regulatory bodies and customers, among others, who have supported Masteel throughout this challenging year. We look forward to your continued support in the years to come.

Thank you.

Dato’ Ikhwan Salim Bin Dato’ Haji Sujak

Chairman.

2011 Annual Report: Managing Director/CEO’s Statement

Monday, June 11th, 2012

FY2011 Overview

Overall, FY2011 was a mixed year for Masteel and the steel industry as a whole. While steel demand continued to be positive as a result of increased construction and manufacturing activities in the region. However, declining margins due to economic uncertainties emanating from abroad had impacted the Group’s profitability.

In spite of that, we were able to achieve a few milestones. For a start, we achieved record revenue of RM1.3 billion, up 24.7% from RM1.0 billion in FY2010.

In addition, in FY2011, leveraging upon Masteel’s expertise in the export markets, we were able not only to grow market share in traditional territories, but also make in-roads into newer markets like Myanmar and Sri Lanka.

Operationally, we had incurred higher financing costs during the year, due to higher working capital requirements coupled with capital expenditure (CAPEX) investments needed to grow our capacity. The other challenging factors include higher energy costs and the effects of foreign exchange (FOREX) fluctuations.

Despite the difficult global market situation toward the end of the year, Masteel was able to weather most of the market gyrations due to our continuing cost control measures that was initiated in 2009 and continued in 2010. This has enabled the Group to remain competitive and profitable in FY2011 with a net profit of RM24.5 million.


Growth Strategies

Acknowledging the need to continue strengthening our capabilities, given Masteel’s aim to be amongst the market leaders as a quality niche steel producer, in FY2011 the Group announced CAPEX plans to invest an estimated RM230 million over the next three years to grow our annual production capacity and improve our profit margins.

This will be achieved by the setting up of a new rolling mill facility in Klang, Selangor, which will be built adjacent to our existing billet plant. This new facility, once fully operational, will have an annual production capacity of 160,000 tonnes, enhancing our total Group capacity of steel bars to over half a million tonnes of finished products per annum.

We will also steadily increase our meltshop capacity by about 18.2% to 650,000 tonnes from 550,000 tonnes currently.

This CAPEX investment will allow Masteel to take better advantage of the opportunities inherent within the domestic market as a result of the various economic initiatives being spearheaded by the Malaysian Government as well as the country’s own resilient property market.

It will also allow the Group to benefit further from new opportunities from export markets, especially in emerging regional economies like Indonesia, South India and Myanmar, which are undertaking various infrastructure initiatives that will require our products.

Masteel is also seeking to augment its core business with ventures that would yield higher returns and are less cyclical in nature; this can be seen by the strategic development in FY2011 whereby a joint venture (JV) with KUB Malaysia Berhad (KUB) to supply and operate a world-class rail transport network within the Iskandar Malaysia region and Woodlands, Singapore, was initiated.

This endeavour will provide us with an avenue to expand into the attractive infrastructure industry. Going forward, the Group will explore similar strategies going forward as and when they may arise.

 

Corporate Updates

  • Head of Joint Venture Agreement with KUB Malaysia Berhad

On 19 January 2011, Masteel and KUB entered into a 60:40 JV agreement to combine capabilities and resources via a JV firm – Metropolitan Commuter Network Sdn Bhd (MCN) – to work on the proposed inter-city rail line within Iskandar Malaysia with a connection to Singapore’s MRT network.

On 15 April 2011, the Menteri Besar of Johor, Dato’ Haji Abdul Ghani Othman, endorsed MCN’s application to build and operate the rail network via a press statement. Subsequently, MCN began the process of engaging various Malaysian Government agencies on the matter.

On 8 August 2011, MCN presented the rail network proposal to the Economic Council, chaired by Prime Minister Dato’ Sri Mohd Najib Tun Abdul Razak. The firm was directed to finalise the matter pertaining to its proposal in conjunction with the Government’s own double tracking programme before reverting back to the council.

In September, October and November 2011, Masteel held a series of discussions with the Ministry of Transport, Keretapi Tanah Melayu Berhad and Railway Asset Corporation on the operational requirements of the MCN project. Barring any unforeseen circumstances, the Group is now awaiting the next presentation to the Economic Council, slated for the first quarter of 2012, to seek approval for the project.

 

Prospects

2012 has seen the continuation of the effects of the sluggishness in demand that had plagued the global steel industry since the second half of 2011. As a whole, the sector continues to be affected by overall lower prices and higher material costs.

The Euro-zone crisis continues to impact global steel prices while China has seen a slowdown in its economy as its construction and property sectors adjust to monetary tightening by its central government to ease inflationary pressures and to re-position its economy.

However, going forward, the market consensus is one of optimism, with the strong performance of Emerging Market economies and their continued appetite for steel needed for their infrastructure and commercial development.

According to reports in the Indian media, the South Asian nation is expected to boost steel production capacity by 20% to 100 million tonnes per annum by 2013 to meet domestic demand.

Meanwhile, Australian iron ore miners BHP Billiton, Rio Tinto and Fortescue Metals Group remain bullish on China demand in spite of recent slowdowns. The industry giants expect demand for the East Asian giant to continue to grow strongly over the next decade while steel demand elsewhere around the world would rise by about 3% per year over the next eight years.

This forecasted overseas demand bodes well for Masteel, given our continuing strategy to consolidate and grow our exports.

However, we can also take heart from expected continuing domestic demand, especially from two factors: the robust property sector and the increasing number of project rollouts under the Economic Transformation Programme (ETP) initiatives that will fuel demand for steel products.

Masteel’s on-going CAPEX investments to grow our capacity and our strategic location within the Klang Valley, where a large number of major projects are being implemented, plus our competitive prices, will further galvanise our position in the Malaysian steel industry.

 

Dato’ Sri Tai Hean Leng @ Tek Hean Leng

Managing Director/Chief Executive Officer

2010 Annual Report: Managing Director/CEO’s Statement

Thursday, July 28th, 2011

FY2010 OVERVIEW

The business strategies undertaken in 2010 were very much a continuation of what we implemented in 2009, when we were faced with one of the worst economic challenges in our corporate history. Our initial measures include keeping our operating costs low in order to stay competitive even with the depressed prices of steel products.

More importantly, we wasted no time in ensuring that Masteel retained its market share during the downturn. We continued to focus on maintaining strong relationships with our local network of dealers and distributors. This in effect kept us responsive to the changes in the local construction and property sectors, from which demand for steel products is mostly derived.

In 2010, demand for steel products in Malaysia returned in tandem with the improved business sentiment, while prices continued to trend up at the same time. With that backdrop, our local sales rose 39.8% year-on-year to RM783.1 million, a level even higher than RM765.7 million achieved in pre-economic crisis year of 2008.

Also, we increased our efforts in expanding the contributions from our export markets, leveraging on our high quality products. Last year, Masteel obtained endorsement from the stringent Australia Certification Authority for Reinforcing Steels Ltd for our steel bars, opening the door for Masteel to enter the Australia and New Zealand market. The efforts paid off for the Group as we saw record revenues from our export markets, rising 74.2% to RM221.7 million in FY2010 versus RM127.3 million in FY2009.

GROWTH STRATEGIES

Growth has always been the focus of Masteel’s management. Today, we are one of the top 5 integrated steel mills in the country, owing to our commitment to continuously enlarge the Group’s capacity.

Going forward, we will continue to drive the Group’s growth by sustainable capacity expansion.

During the year under review, we invested a capital expenditure (“CAPEX”) of about RM18 million to increase the capacity of our billet production plant to 500,000 metric tonnes, from 450,000 metric tonnes in 2009. The expansion was achieved in a cost effective manner, by improving the production efficiency of the existing main steel making facilities.

For the current financial year, we will continue to upgrade the billet plant to a maximum capacity of 550,000 metric tonnes.

With the billet plant expansion, we now have more installed capacity, giving us the larger capacity to meet the anticipated ramped-up of demand in the near future.

As for downstream products of steel bars, our rolling mill in Petaling Jaya is currently among the top producers of steel bars in the country, with about 350,000 metric tonnes production capacity. We aim to invest further CAPEX to install a second rolling mill, boasting a total capacity of 500,000 metric tonnes within the next two years.

The general recovery of the global economy underscored by the fiscal initiatives put in place by governments worldwide to mitigate the recession in 2008/2009 have resulted in boosting construction-related demand for steel products. The other driving factor is the unabated investment in infrastructure by rapidly-developing countries like China, India, Brazil and Indonesia. China’s recent announcement of investing USD200 billion for the construction of low cost housing will further underpin the demand for steel bars.

The reconstruction efforts following the aftermath of the Japan tsunami and earthquake are expected to spur the medium to long term demand for steel.

Locally, the Government’s plan to implement the RM50 billion-Ringgit MRT project in the Klang Valley will certainly augur well for the local steel industry.

As a Petaling Jaya-based steel mill, due to its proximity to all MRT sites, Masteel will certainly benefit from the MRT project, be it a direct or indirect role from our supply of billets and bars for the construction of the rail related infrastructure and stations.

CORPORATE EXERCISES

Private Placement

During the year under review, Masteel undertook a private placement exercise of up to 10% of the issued and paid-up share capital of the Company, or 19.47 million new ordinary shares of RM0.50 each. On 31 July 2011, Masteel successfully placed out 16.12 million new shares to identified investors, raising RM16.3 million proceeds net of listing expenses for the Group.

The private placement exercise resulted in Masteel’s share capital increasing to RM105.4 million, consisting of 210.8 million ordinary shares of RM0.50 each, from RM97.3 million previously.

Warrant Issue

In addition, Masteel undertook a renounceable rights issue of 105.4 million five-year warrants on the basis of one (1) warrant for every two (2) existing ordinary shares held by shareholders, at an issue price of RM0.18 per warrant. The exercise was overwhelmingly oversubscribed by the shareholders, helping to raise RM18.3 million, net of listing expenses, for the Group’s working capital needs.

The five-year warrants are convertible to Masteel ordinary shares on a basis of one (1) warrant to one (1) new ordinary share at an exercise price of RM0.67 per share; thus, expecting to raise up to RM70.6 million proceeds in the future for the Group’s expansion and working capital needs.

CORPORATE DEVELOPMENTS

Subscription And Share Sale Agreement entered with IBA Pharma S.A. (“IBA”) and Bio Molecular Industries Sdn Bhd (“BioM”)

On 2 June 2010, Masteel entered into a Subscription and Share Sale Agreement with IBA – a wholly-owned subsidiary of Ion Beam Application S.A., whereby IBA agreed to undertake strategic investment in BioM – a wholly-owned subsidiary of Masteel before the transaction.

The exercise effectively resulted in Masteel and IBA becoming partners in BioM; whereby Masteel’s shareholding in BioM was reduced to 45.34% of the enlarged share capital of RM18.5 million, and IBA’s investment (inclusive of Societe Belge D’Investissement International shareholding) in BioM stood at 54.66%.

Signing of Heads of Joint Venture Agreement with KUB Malaysia Berhad (“KUB”)

Going into the new financial year of 2011, Masteel has entered into a Joint Venture (“JV”) agreement with KUB Malaysia Berhad to form a 60:40 JV company – Metropolitan Commuter Network Sdn Bhd, to undertake a RM1.23 billion project to supply and operate a world class rail transit network spanning across Iskandar Malaysia and Woodlands, Singapore.

The project was mooted by Masteel and KUB, as we saw tremendous opportunity to play a pivotal role in creating an efficient and world class mass transport system for the rapidly-growing Johor Bahru city and the vicinity of Iskandar Malaysia.

The joint venture (“JV”) project entails buildings of stations, halts and related infrastructure works covering approximately 100.0 km railway in Iskandar Malaysia at an estimated cost of RM1.23 billion, by utilizing the existing Keretapi Tanah Melayu Bhd’s track and land reserve. The integrated railway network will have linkages to Nusajaya, Masai, Kulai, Johor Bahru Sentral, and Woodlands, Singapore.

The JV will first “Build-and-Transfer” the rail transit infrastructure and thereafter “Own-and-Operate” the intracity train system to build up a recurring income base.

The project aims to accommodate an annual ridership of more than 30 million.

With the project, Masteel aims to catapult ourselves from a steel products manufacturer to a key infrastructure player with steady and robust income stream.

The JV company is currently in the process of negotiation with the federal government after having recently received the endorsement from the Johor State Government and IRDA and is targeted to commence construction by early 2012, barring unforeseen circumstances.

DATO’ SRI TAI HEAN LENG @ TEK HEAN LENG
Managing  Director / Chief Executive Officer

2010 Annual Report: Chairman’s Statement

Thursday, July 28th, 2011

Dear Shareholders,

On behalf of the Board of Directors (“the Board”), I am pleased to present to you the 2010 Annual Report and the audited financial statements of Malaysia Steel Works (KL) Bhd (“Masteel” or “the Group”) for the financial year ended 31 December 2010 (“FY2010”).

Masteel ended FY2010 on a strong footing, successfully emerging from the economic challenges in 2009.

The Group’s turnaround performance was underpinned by the strong recovery in the global economy, particularly in Asia. In addition, property and commodity markets also rebounded with firmer demand and prices, notwithstanding the continued headwind in the developed economies in the US and Europe, which are still weighed down by unemployment and public debt.

The steel industry, after seeing prices collapse during the sub-prime crisis in the US in 2008/9, has been enjoying an uptrend in prices for most of the steel products since early 2010, signalling the worst is over for the industry as construction activities resumed with the improved business sentiment.

FY2010 FINANCIAL PERFORMANCE

Against this backdrop, Masteel posted the best-ever sales of RM1.0 billion for the Group in FY2010, compared to RM687.3 million previously. The impressive top line growth was largely due to both the increase in sales tonnage and the better selling prices of steel bars and billets.

As a result of the improved sales, the Group returned to profits with profit before tax of RM30.0 million in FY2010, against a loss before tax of RM8.5 million in the previous financial year.

In fact, the profits for the year under review would have been higher if not for the write-offs and provision amounting to RM14.0 million – RM5.0 million of which from impairment of bond investment, RM4.7 million as a result of disposal/reduction of stake in our subsidiary company – Bio Molecular Industries Sdn Bhd (“BioM”), and RM4.3 million provision due to a legal suit.

Masteel closed the year with net profits of RM28.1 million, or basic earnings per share (“EPS”) of 13.6 sen, versus a net loss of RM8.1 million or basic loss per share of 4.2 sen.

Our balance sheet continued to strengthen. Whilst shareholders’ equity as at 31 December 2010 showed a 14.7% improvement to RM478.6 million, due mainly to the retained profits; cash and bank balances increased 10.8% to RM48.4 million, and interest-bearing borrowings decreased to RM258.0 million, from RM264.8 million previously. As such, our gearing (net of cash) decreased from 0.53 time in the previous year to 0.44 time, a comfortable level for the Group to undertake further expansion.

With the positive performance, the Board has recommended a first and final single tier dividend of 1.35 sen per share in respect of FY2010. The quantum amounts to 10.1% payout from the Group’s net profits for the year under review. The proposed dividend is subject to shareholders’ approval during the upcoming Annual General Meeting. We look forward to your continued support and confidence in Masteel.

CORPORATE SOCIAL RESPONSIBILITY

The Board acknowledges the importance of Corporate Social Responsibility (“CSR”). Therefore, the company has taken various initiatives to uphold the interests of the society and address issues, while maintaining a healthy and safe environment for employees.

CORPORATE GOVERNANCE

The Board endeavours to adhere to corporate governance best practices within the Group as a crucial step to achieve business sustainability and prosperity. The Board is committed to implementing strategies that are in line with the Board’s objective to create and protect shareholders’ value.

The measures undertaken by the Board to maintain our corporate governance are highlighted in the Corporate Governance Statement in the Annual Report.

APPRECIATION

On behalf of the Board, I would like to express my appreciation to my fellow Directors, management and Masteel’s employees for the hard work and the steely resolve in turning the Group around.

To our valued shareholders, the Board is appreciative of your unwavering support. At this juncture, allow me to reiterate our steadfast commitment in making Masteel a strong investment case for growth.

Thank you.

DATO’ IKHWAN SALIM BIN DATO’ HAJI SUJAK
Chairman

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