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
