Kinsteel’s net worth erodes further with wider losses

by **Cals** Wed 04 Jun 2014, 02:55

Business & Markets 2014

Written by MIDF Research

Tuesday, 03 June 2014 10:12

Kinsteel Bhd
(June 2, 16 sen)
Maintain sell with target price of nine sen: Kinsteel reported a higher net loss of RM94.6 million in the latest quarter ended March 31 of financial year 2014 (FY14), compared to a net loss of RM49.6 million in the preceding quarter. (Kinsteel has changed its financial year end from Dec 31 to June 30.)

The higher net losses were due to zero production by its subsidiary Perwaja Holdings Bhd with the curtailment of gas and electricity supply to the latter and lower sales revenue.

Also contributing to the loss was the write down of inventory of RM90 million at Perwaja. The subsidiary’s assets of RM90 million were also written off.

If the write-downs were excluded, net losses would have been lower for the latest quarter.

Cumulative losses for the 15-month period (15MFY14, from January 2013 to March 2014) came in wider than our expectations. For the period, the group reported a loss of RM299.8 million. It accounted for 89.8% of our forecast of a net loss of RM337.5 million for the 18-month period from Jan 1, 2013 to June 30, 2014.

The tax rate in the latest quarter was higher than 25% due to the reversal of deferred tax assets recognised in the previous years.

Perwaja’s restructuring scheme is still in progress. As we had highlighted in our earlier report, we expect this to be protracted, as it may take time to get all of its creditors to agree to the restructuring scheme to uplift Perwaja from its PN17 status. Even if the creditors were to agree to the restructuring proposals, we believe the group will still need a cash injection or additional equity capital to carry on its business operations. Securing the additional capital will be a big hurdle for the group.

Its business operations have continued to face challenges due to weak steel prices and demand. Dumping of cheaper steel products by China mills has caused prices of steel products to soften, especially that of steel bars and wire rods.

In addition, global overcapacity particularly in China is likely to impact steel product prices as production continues to outpace demand. — MIDF Research, June 2

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This article first appeared in The Edge Financial Daily, on June 03, 2014.[/size]