YKGI - Steel Up
YKGI
Holdings Berhad (YKGI - 7020) is one of Malaysia top 3 flat steel
producer. Formerly known as Yung Kong Galvanising Industries Berhad, the
group operates in Peninsula Malaysia as well as East Malaysia. YKGI
also had trading hub in Thailand and Indonesia to distribute their
coated steel products.Albeit the increasing consumption of steel which is fueled by large infrastructural development in Malaysia, Malaysia steel industries outlook had been very challenging for the past 4 years with cheap steel imports largely from China and Vietnam, increasing cost from higher electric tariffs, implementation of GST as well as increasing labor cost.
However, the recent effort in the Malaysian Government in introducing anti dumping duties on steel import had gave the industries a new lease of life again. On the 22nd January 2016, MITI had imposed a flat rate 52.1% duties for import from China, while Vietnam producer/exported saw anti dumping duties as high as 34.85%, with exception for Nam Kim Steel Joint Stock Company. The duties are imposed on pre-painted, painted or color coated steel coils (PPCCSC) for a period of 5 years.
How would this be a turn around opportunity for YKGI ?
Steel Manufacturer on Pump Up Production
The huge vacant in the supply chain had definitely left the local steel manufacturer rushing to pump up their production in order to meet the continuous demand of steel. Malaysia being a developing country had been consuming much steel locally, primarily contributed by the huge infrastructural development project such as LRT extension, MRT as well as highways.
As for YKGI, the group is currently pumping out additional 80,000 tonnes or 53% in order to meet the rising demand following the imposition of the provisional anti dumping duties for PPCCSC products imported from China and Vietnam.
For the past couple of years, YKGI had been suffering from low volume production that resulted in operation losses. However, 2016 will be the turn around year for YKGI supported with higher steel demand due to large infrastructural project taking place in Peninsula (LRT, MRT) and East Malaysia (Pan Borneo Highway).
YKGI had streamlined is operation of Asteel Sdn Bhd, Asteel (Bintulu) Sdn Bhd, Asteel (Sabah) Sdn Bhd into Asteel Resources Sdn Bhd.
The technical aspect of YKGI had shown interesting development with the share price showing a rock bottom price consolidation at the range of RM 0.20, as well as a price break out on the long term down trend resistant line. The break out should be able to maintain it's momentum given the changing landscape of the industry through imposition of anti dumping duties from the government.
YKGI could be looking to travel towards it's first straight line resistant target at RM 0.36 in the medium term.
Market trending strong in steel industry
The KLSE had saw strong interest in listed steel manufacturer. The imposition of the anti dumping duties had saw huge interest in largely beaten down share price of major big player in the steel industry, such as Annjoo, Masteel, Cscsteel and SSteel.
The effect had start to see interest spilling towards the smaller steel manufacturer that is listed in the KLSE, such as Melewar and Mycron.
Benefit from a stronger MYR
One of the core reason for the group running into losses in 2015 despite higher revenue is due to the higher operating cost from a stronger USD.
As MYR had started to bounce back into the range of 1 USD to RM 4.00, this will benefit from a better production cost.
Pull Demand from Huge Public Infrastructure Development
The government commitment towards the infrastructural development of the country will continue to be the main fuel for the demand in steel industry. YKGI is expected to see it's order demand in Sarawak to rise by 50% in 2016 to 2018 due to the rapid development in the state.
Last year, East Malaysia contributed 20% of revenue to the group.
Infrastructure projects such as LRT, MRT, Pan Borneo Highway and construction development continue to underpin the demand of steel industry.
At the current price, YKGI is deemed attractive given the industry outlook and market prospect in Malaysia. A mid term outlook will see YKGI setting it's footage at the range of RM 0.35, while a short term outlook should be able to see YKGI trading above RM 0.25.
YKGI (7020) - YKGI HOLDINGS BERHAD (YKGI, 7020) - Steel Up
http://bonescythe.blogspot.my/2016/03/ykgi-steel-up.html
