Lion confirms talks on steel collaboration

KUALA LUMPUR: The Lion group confirmed it is in talks with various parties to form a strategic partnership aimed at growing the conglomerate’s steel manufacturing operations.

In an announcement to Bursa Malaysia, Lion group said the discussions were at an “exploratory stage and accordingly, there were no certainty that it would lead to a more definitive and conclusive understanding between the parties.”

Three listed entities, namely Lion Diversified Holdings Bhd (LDHB), Lion Industries Corp Bhd (LICB) and Lion Corp Bhd, made separate announcements to the stock exchange relating to the move to seek foreign partnership.

“In this regard, the company will make the appropriate disclosures in due course and at the appropriate time,” the statements said.

The Edge Financial Daily reported yesterday that the Lion group was expected to consolidate its steel business soon, in order to pave way for the entry of a foreign strategic partner to help grow its steel operations.

It is learnt that the group has started meeting steel players from various countries, including China’s Baosteel Group, which have shown interest in its steel operations. The source had also indicated that the potential foreign partner would eventually participate in Lion’s entire steel business.

Lion Corp was the most actively traded stock yesterday. Despite the news, its share price, which has been drifting downward since February, dropped further to 28.5 sen, down 1.5 sen with 43 million shares changing hands.

However, LDHB, the third most active stock, reversed its downward trend gaining one sen to 45 sen with some 26 million shares traded.

LICB shares fell one sen to RM1.86 with some nine million shares traded. During the last six months, the stock had traded at a high of RM2.16 on Jan 13 and a low of RM1.51 on June 6.

As at March 31, Lion Corp’s net assets per share was at 11 sen while LDHB’s amounted to RM2.17 and LICB RM4.46.

The Lion group undertakes its long steel product operations under various units — Antara Steel Mills Sdn Bhd, Amsteel Mills Sdn Bhd and Bright Steel Sdn Bhd. The group has also ventured into flat steel products via Megasteel Sdn Bhd.

In a note yesterday, OSK Research analyst Ng Sem Guan said the potential disposals of Lion Group’s steel assets would most likely see the seller giving up its controlling interests in its respective steel operating units.

“Our view is backed by the fact that a prospective investor may need management control to justify the substantial investment, and provide in-house technology and technical support to improve plant efficiency,” he said.

Ng said a price-to-book valuation was more suitable to determine the value of Lion group’s steel assets by virtue of the capital intensive nature of the steel sector. As the industry is going through a difficult cycle, the analysts said a price-to-earnings valuation was not an appropriate gauge to ascertain the potential price of the disposal.

“In the past few transactions involving the Lion group of companies disposing of some of its business entities, the pricing had been close to the company’s book value, whereby the steel units under LICB and LDHB may command a small premium although the losses racked up by Megasteel since its inception may attract a discount in its valuation,” Ng said.

The analyst said the potential disposal of Lion’s steel assets could immediately close the valuation gap of the various steel operating units under the conglomerate.

Meanwhile, Hong Leong Investment Bank analyst Chye Wen Fei said the potential entry of Baosteel as strategic partner in LICB was a positive development.

In a note, Chye said Baosteel could help LICB improve its steel production capabilities, resulting in better cost efficiencies. Also, Baosteel’s financial muscle could also improve LICB’s balance sheet and cash flow, the analyst said.

“(It could) result in an immediate re-rating catalyst to LICB’s share price if Baosteel is acquiring Amsteel Mills at high valuations,” said the analyst who has a “sell” recommendation for LICB shares with a target price of RM1.51.

seow 1.51 many ppl gonna die kaw kaw 4 chasing it up ...