07 May 2015

MALAYSIA STEEL WORKS (KL) BHD [S] (Masteel, 5098) – Delay Audited Financial Statement (AFS) - Case Study


Latest Quarterly Summary: Future is going to be better.

From its latest quarterly report (2014 Q4), MALAYSIA STEEL WORKS (KL) BHD [S] (Masteel, 5098)appears to be very optimistic about the future as follows:
Prospects
The Company is expected to increase its bar sales volume by 10% for the first half of the year and upon the commissioning of its new rolling mill during the second quarter, for the second half the year, it is anticipated to sell an additional 100,000 mt of high tensile steel bars.
The margin is expected to improve due to the following factors:
1) the continued decline in scrap prices.
2) the reduction in electricity tariff of 5.8% from March till June 2015.
3) higher levels of economies of scale due to higher volume of production .
4) the suspension of natural gas price revision by the Government.
5) due to the stabilizing international iron ore prices, the prices of Chinese steel imports are expected to bottom out.
The Company is expected to perform well in the following quarters based on prevailing business conditions.
The impending impositions of goods services tax (GST) on the Company’s products are not expected to have any material impact on the sales volume of the Company.
 

Shareholding Analysis: Something opposite

According to 2013 Annual Report, Dato’ Sri Tai Hean Leng, Managing Director and CEO of Malaysia Steel Works (KL) Bhd had around 4million Masteel shares.
However, the Managing Director disposed 4.1 Million shares on 30 Dec 2014 as that stated in Bursa Malaysia at a price of RM0.80 only. In other words, the Managing Director already disposed all the shares that directly held by him and obtained around RM3.28million cash.
http://www.bursamalaysia.com/market/listed-companies/company-announcements/3491377

Question: Why the Managing Director who was so confident with Masteel’s future sold 4million shares?


Warrant Exercises: Pumped in RM14.74million cash to Masteel.

On 3 April 2015, a major shareholder of TYY RESOURCES SDN BHD exercised 2million warrants with cost of RM0.67 per exercise. In other words, around RM1.34million cash has been flowing in Masteel. Since the Managing director also indirectly partially own TYY Resources, indirectly, the Managing director appears to have the same exercises as that announced in Bursa Malaysia.
 
According to 2013 Annual Report, the total shares of Masteel were around 222million. On 14 April 2015, the total shares were around 244million. In other words, around 22million warrants has been exercised and there was around 22million x RM0.67 = RM14.74million cash flowed into Masteel in the last 18 months.
 

The transaction was high in last one month

From 12 Mac 2015 to 5 May 2015, a total of 52million (52,708,000) shares was transacted. 45 of the 52 million shares were transacted from 8 April 2015 to 7 May 2015 (around one month).
With total shares of around 244million, around 18% of shares were transacted in last one month. However, I think this is normal because the news of delaying Audited Financial Statement is a major concern for everyone who have interest in Masteel.
 
Regardless the future of MALAYSIA STEEL WORKS (KL) BHD [S] (Masteel, 5098), the information that I have indicates that both of them do to support one another. Normally, listed companies are eager to maintain their public image and thus tend to use the buyback tool to maintain its market price. On the other hand, directors will increase their shares holding if they think the market undervalues their companies.

 

Personal Opinion

Since Masteel (5098) has already asked Special Auditors that need around 6 weeks to complete another external audit, mostly, the audited financial statement is expected to be announced after that and thus, it will be up to Bursa to determine the fate of Masteel by next week.
http://www.bursamalaysia.com/market/listed-companies/company-announcements/4724949
 
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Written by: Xaivier Chia


P/S: The above sharing is solely based on personal insight and information that believed to be reliable. Your valuable feedback are very welcome.


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