AISB sees improved fortunes

KUALA LUMPUR: Amalgamated Industrial Steel Bhd (AISB), a downstream steelpipe maker, expects to perform better in the second half (2H) of this year on the back of the stabilising price of hot-rolled coils — a main ingredient to make steel pipes, a company official said.

“The strategies to be employed over the next nine months will be to turn around first,” the official told The Edge Financial Daily recently. “The second half of the year should be better than the first half. The price of hot-rolled coils (HRC) has stabilised in June and July,” he said.

Expectations are that there won’t be another serious dip in prices this time around unlike last year where prices of HRC, a benchmark for flat steel, had dropped about RM500 per tonne from July to October, he said. That dragged AISB’s performance down by at least RM5 million in 2H2010 and threw it into a loss in 1Q of 2011 (1QFY11).

Poor selling prices on the back of sluggish demand largely summed up AISB’s RM1.18 million net loss for 1QFY11, versus a net profit of RM319,000 the same quarter the year earlier, despite revenue increasing slightly to RM32.81 million from RM31.05 million. “The first quarter was bad due to the sluggishness of steel pipe demand,” the company official said. “It was difficult to keep product price firm. This caused margins to drop and hence our first quarter loss.”

He said AISB is different from peers like Hiap Teck Venture Bhd, Choo Bee Metal Industires Bhd and Tatt Giap Group Bhd, which had remained well in the black over the same period it went into the red. “We are different from those few companies you mentioned because there are well diversified into other steel products,” he explained. “They are traders for very wide range of steel products.”

AISB did see cash from operations improve to RM4.01 million during 1Q from RM3.12 million a year earlier. Balance sheet wise, the company had RM69.35 million short-term borrowings, RM6.94 million long-term borrowings and RM5.23 million cash, translating into a net debt of RM71.06 million as at March 31, 2011. Based on its shareholders’ fund of RM81 million, AISB’s net gearing stood at some 0.88 times.

It is worth noting that Chuan Huat Resources Bhd recently emerged as AISB’s substantial shareholder with a 7.03% stake.

According to filings with Bursa Malaysia in May, the stockist and hard and building material trader acquired eight million shares in AISB for RM3.6 million or 45 sen per share, of which 7.53 million shares were acquired from Puan Sri Elham Hamid Abdullah, the wife of former Perlis menteri besar Tan Sri Abdul Hamid Pawanteh. A substantial shareholder of AISB since October 2003, she ceased to be one following the disposal.

Chuan Huat is sitting on a paper loss of about 14% if measured from AISB’s 38.5 sen close last Friday. Still, the price it paid was a 36.8% discount to AISB’s net asset per share of 71.23 sen as at March 31, 2011.

“Chuan Huat is one of AISB’s large customers and we hope they are able to buy more from us,” said the company official. “Hopefully, AISB’s management can approach Chuan Huat to see if there areas that both parties can cooperate. Time will tell.”

AISB’s controlling shareholders are Datuk Lim Chee Ming and his family who also control Taliworks Corp Bhd.

Although domestic prices of mild steel HRC had stabilised at the RM2,600-range now, it remains to be seen if AISB can regain its profit margin in the absence of a surge in stockists’ demand.

Be that as it may, it would be interesting to see if AISB’s new shareholder would aid its fortune.