Steel play benefits Melewar

by **Cals** Fri 12 Sep 2014, 17:21

Business & Markets 2014

Written by Kamarul Anwar of theedgemalaysia.com

Friday, 12 September 2014 09:34

KUALA LUMPUR: Local steel players, many of whom have been battered by oversupply for years due to dumping activities, saw a deluge of interest yesterday on the local bourse.

The biggest beneficiary of this market play was Melewar Industrial Group Bhd, a steel pipe manufacturer, whose share price was traded higher by as much as 14 sen or 34% and emerged as one of the day’s most active counters.

Melewar, which is 36.53%-owned by Negeri Sembilan royalty Tunku Datuk Ya’acob Tunku Abdullah, closed nine sen or 21.95% higher at 50 sen, its highest since Jan 31, 2012, with 24.49 million shares changing hands compared to its one-year average of 162,000.

Melewar’s 54.79%-subsidiary Mycron Steel Bhd jumped 5.5 sen or 13.75% to close at 45.5 sen. The counter was traded to as high as 48.5 sen earlier before closing with a volume of 3.17 million.

Yesterday, theedgemalaysia.com reported — citing unnamed dealers — that there is speculation on an upcoming corporate exercise involving Melewar and Mycron that fuelled interests in the two companies. Melewar declined to comment when contacted.

An executive familiar with Melewar, however, denied there is any impending corporate exercise and said it was sheer speculative play.

Melewar returned to the black with a net profit of RM18.97 million on RM664.55 million revenue for its financial year ended June 30, 2014 (FY14) from the disposal of its power business, compared to a net loss of RM214.96 million on revenue of RM760.43 million in FY13.

As for Mycron, it incurred a net loss of RM9.23 million for its financial year ended June 30, 2014 (FY14), compared to a net profit of RM6.998 million a year earlier. Its revenue, too, dipped 12.74% to RM447.96 million from RM513.33 million.

However, the two companies’ book values are significantly lower than their stock prices. As at June 30, Melewar’s net asset per share was RM1.26, translating to a price-to-book value (P/BV) of 0.4 times as at yesterday’s close. Mycron, meanwhile, was traded at a P/BV of 0.31 times yesterday as its equity per share was RM1.45.

Although loss-making counters are usually valued by its equity-per-share, a steel analyst said different companies would have a different premium or discount pegged to their P/BVs because each company has a unique asset quality to determine whether it is an appealing acquisition or not.

Still, Melewar and Mycron looked undervalued on paper compared with their net assets per share.

The steel play yesterday also spilled onto financially distressed Perwaja Holdings Bhd and Kinsteel Bhd, pushing up their share prices beyond the equity values.

Perwaja closed one sen or 7.14% higher at 15 sen while Kinsteel upped 2.5 sen or 11.36% to 24.5 sen.

This article first appeared in The Edge Financial Daily, on September 12, 2014.