Lysaght braces for a challenging 2014

Posted on 10 December 2013 - 05:39am

Liew Jia Teng
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SHAH ALAM (Dec 10, 2013): Lysaght Galvanized Steel Bhd is expected to post a record net profit for the current financial year ending Dec 31, 2013 (FY13), said its managing director Liew Hoi Foo, but he cautioned that the growth momentum may not be sustainable next year due to volatility in prices of raw materials namely steel, zinc and diesel.

The galvanised steel product manufacturer targets a 19% increase in net profit this year, to RM14 million from RM11.72 million in FY12, while revenue is expected to hit RM73 million.

For the first nine months ended Sept 30, 2013, Lysaght's net profit of RM11.79 million already surpassed FY12 net profit, which grew by 76% from the year-ago period. This was achieved on higher revenue of RM60.82 million, which was up 13% from RM53.86 million a year ago.

"We hope to clock a net profit of RM2 million in the final quarter of this year on revenue of some RM12 million," Liew told SunBiz in an interview.

Liew attributed this year's better performance to the subcontracts it has bagged from Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd (SPYTL) last year, which have spilled over into FY13.

In March 2012, Lysaght bagged four subcontracts totalling RM22.75 million for the fabrication, supply, delivery, installation and handing over of antenna poles to SPYTL. The group secured another RM22.75 million worth of works to the subcontracts in July.

However, Liew foresees the group having a challenging year ahead. He sees the group's revenue slipping by as much as 20% in FY14, while the decline in its net profit may be even more severe.

"Unlike this year, there is no sign of major projects coming in for us in 2014. The property market is slowing down, while infrastructure projects such as the mass rapid transit (MRT) and the West Coast Expressway will not be completed so soon," he said.

Liew noted that Lysaght, as a manufacturer and supplier of galvanized steel poles and masts, can only participate at the late stage of projects.

"We can do a lot of promotions for our products, but at the end of the day the spender is the government and they are the mover. If they don't move, there is nothing much we can do about it because Lysaght cannot spearhead the projects," he added.

In its 2012 annual report, Lysaght chairman Tan Sri Dr Wan Abdul Rahman Wan Yaacob warned that prices of raw materials – steel, zinc and diesel – have been volatile in the past years and such volatility in prices poses a serious challenge to the group's profitability.

On the planned electricity tariff hike for industrial users of an average 16.85% or 5.21 sen/kWh from Jan 1, 2014, Liew said it will be a problem for the group as well as its competitors although it plans to pass on the additional costs to customers.

"All in all, I think the impact will be significant to our bottom line, but not significant enough to affect our survival," he said.

Electricity cost makes up about 5% of Lysaght's overall operating costs, while the cost of raw materials such as steel, zinc and diesel accounts for 60%.

Lysaght currently operates its production plant at Tasek Industrial Estate, Ipoh, with a built up area of about 315,000 sq ft, with capacity of 25,000 tonne per year.

Lysaght said domestic demand will remain the main anchor of growth for 2013 as has been in the past few years, with the export market contributing 30% of the group's revenue.

The group recently proposed to acquire land together with its head office building and warehouse at Hicom-Glenmarie Industrial Park in Shah Alam, Selangor from Lysaght Malaysia Sdn Bhd (LMSB) for RM11 million cash.

Liew said the acquisition will provide opportunity for Lysaght to own its headquarters and accrue savings on its current office rental expenses as the group has been renting the property from LMSB since 2001.

After the acquisition, Lysaght's cash position will reduce to RM35 million from RM46 million currently.

Liew is the son-in-law of Chew Kar Heing and Lim Lee Kuan, both of whom sit on the board of Lysaght. Through LMSB and Ingli Sdn Bhd, the Chew family and Liew collectively have more than 70% of indirect shareholding in Lysaght.