Thursday, August 16, 2007

Ornasteel IV

My Dearest Ngok Yee,

Ornasteel reported its earnings last night.

This is their updated earnings table.

I would like to compare the current earnings with the issues brought up in the last posting
Review on OrnaSteel Again. (So what I will do is, I will repeat the old comments here and add in new comments in purple italic fonts again)

First the minus point.

1. As you know, OrnaSteel belongs in the highly cyclical steel industry. And as seen above, the past 2 years were rather disappointing in terms of earnings performance. ( There is a clear turnaround in earnings! ) (Again yes the turnaround the earnings is there. On average, this is a fantastic set of earnings, however I am sure the disappointment is there. Let's be honest, I for one, was expecting much more.)

2. The company dabbles in the share market!....

  • Is this a concern?
  • Is this getting out of hand?
  • Why so poor results in such a hot market?
  • Does the fund manger know what he/she is doing?
  • Does this bug you??
As reported in last night earnings:

The status of the Group’s investment in marketable securities as at the end of the reporting quarter is as follows:-

(i) at cost: RM46.240 million;
(ii) at carrying value: RM46.563 million; and
(iii) at market value: RM46.563 million .

The company purchased more shares!


Is this a worry?

The better points.

1. Although Ornasteel earnings performance was disappointing for fy 2005 and fy 2006, it held up strongly during times when demand and prices were poor. So the assumption is when the good times come, surely Ornasteel would perform much better. ( Performance is decent!)
(Yes, performance is indeed decent!)

2. How the company transformed itself from a net debt to a net cash company is most impressive. (this now not a better point as OrnaSteel turned into a net debt company of 5.999 million!
(Company is now in a nett cash of 79.903 million)

3. Dividends. Last year, Ornasteel paid a 5% less tax ( First and Final Dividend ). This year, a 10% less tax had already being proposed. ( RECOMMENDATION OF A FIRST AND FINAL DIVIDEND OF 10% OR 10 SEN PER SHARE LESS 27% ) ( Still waiting! ) (Dividend has been paid)

4. The market. Market till today is around 1350 points. Surely AmIncome Fund would have performed some little bitsy bit of wonder for Ornasteel's investment, right? ( Do they know what they are doing! ) ( Where is the results?)

~ ~ ~ ~ ~ ~ ~ ~ ~
Overall, the earnings is decent. However as mentioned, perhaps I had expected a much better set of earnings from Ornasteel, hence I am disappointed because if compared to previous quarter, earnings is really flat. And the issue that bugs me is the company's dabbling in the market. I have always preferred companies to return their excess cash back to its shareholders.

The following are some notes from the company earnings notes:

Review of performance

The Group achieved revenue of RM373.0 million and pretax profit of RM29.5 million for the quarter under review. This represents an increase of RM124.0 million or 49.8% higher in revenue than that of its corresponding quarter. Profit before tax improves by RM3.8 million or 15.0% to RM29.5 million from RM25.6 million in the corresponding quarter.

The improved performance is primarily attributable to higher selling prices and higher sale volume of our steel products in the quarter under review compare with the corresponding quarter as a result of higher demand for our products. However, pre-tax profit does not increase proportionately due to higher increase in the cost of raw materials for the quarter under review.

Current year prospects

The result for the first half of 2007 has been quite satisfactory. The demand for our products for the second half of 2007 is expected to be slightly weak in Malaysia although the demand for steel worldwide is still increasing. Domestically, the release of infrastructure projects from the Ninth Malaysia Plan may help to mitigate the expected drop in steel demand. However due to the oversupply of steel from China and some cheap imports from neighbouring countries, the price of steel is under pressure. Barring any unforeseen circumstances, we expect this price pressure to be temporary and would not significantly affect the profitability of the Group for the rest of the year

Old postings:
Review on OrnaSteel Again and Review on OrnaSteel and Ornasteel