Profit Warning From CSC Steel

On Today's Business Times: CSC Steel expects net profit to erode further

• CSC Steel says prices of flat steel products used in cars and home appliances had deteriorated since the fourth quarter of last year
  
  CSC Steel Holdings Bhd (5094), the country's largest producer of cold rolled steel by volume, expects its profit downtrend to continue because of falling steel prices and production cuts arising from lower demand.
  
  Its RM58.8 million net profit in the fiscal year ended December 31 2008, down 26 per cent from the previous year, was below expectations.
  
  Revenue, however, rose to RM1.37 billion from RM1.3 billion.
  
  Managing director Su Wei Jin said that prices of flat steel products used in cars and home appliances had deteriorated since the fourth quarter of last year as demand slowed along with the world economy.
  
  Like other steel producers worldwide, CSC Steel has cut production in response to the weaker demand.
  
  Su said its plants have been operating at 40-50 per cent capacity since the fourth quarter of last year compared with 100 per cent in March-July.
  
  "We will try our best to stay profitable, but it's hard to predict. Even if prices were to go up, we don't know how long they will stay high," he told Business Times in an interview in Malacca.
  
  "The problem is China's demand for steel (during the boom years) led to an oversupply situation in the flat products segment and weak demand today. It is not easy to reverse the situation."
  
  Nevertheless, the company has no plans to lay off its 600-odd workers in the country, but has embarked on cost-cutting measures instead.
  
  CSC Steel is a 45 per cent-owned subsidiary of China Steel Corp, Taiwan's largest steelmaker.
  
  CSC Steel fell into the red in the fourth quarter of last year because of sudden drops in demand and selling prices of its steel products as well as inventory writedowns of RM58.3 million caused by the global financial crisis.
  
  Fortunately, the loss was offset by its good performance in the first nine months.
  
  Su foresees that steel prices and global demand may improve in the remaining months given the fall in prices of crude oil and raw materials, the bailout plans for restructuring the financial market and the various economic stimulus packages.
  
  "We are optimistic of achieving profitability in the first quarter of 2009 as we have brought our inventory under control and saw a recovery in demand for flat rolled steel in February.
  "Still, net profit and revenue will be lower than in the same period last year due to lower selling prices and demand," he said.
  
  CSC Steel is due to release its first-quarter results next Monday.

CSC Steel previous blog postings:

• A Look At CSC Steel Latest Quarterly Earnings
• More Views On CSC Steel
• Regarding CSC Steel'sCurrent Earnings And Its Investments In Marketable Securities

CSC Steel was used to be known as Onarsteel.

• Update on OrnaSteel
• Ornasteel IV
• Review on OrnaSteel Again
• Review on OrnaSteel
• Ornasteel
  

The Insiders Are Selling At Record Highs

Short posting.

One of the issues that has been mentioned is that the Insiders are selling.

Here is a link for reading. MORE ON INSIDER SELLING

• Insiders are overwhelmingly bearish on this market and have become even more so in recent weeks. I can’t remember the last time the ratio of selling:buying was so lopsided….

Do see also SOLD TO YOU!!!!!!!!!!

And Insider Selling Jumps to Highest Level Since 2007

Finally, Something Is Done About Related Party Transactions (RPT)

Something to cheer for! :D

On Business Times: Investors to enjoy better protection under new listing rules

• INVESTORS will get better protection under new listing rules that will be put in place as part of plans to improve Malaysia's stock market.
  
  For related party transactions (RPTs), companies will have to tell their shareholders the opinion of their audit committee and directors. Essentially, the audit committee will have to say why the deal is good for the company.
  
  RPTs are normally deals that involve a common substantial shareholder. Such deals often raise concerns because they are often done at the expense of minority shareholders.
  
  Under the new rules, companies will also have to immediately announce if its independent adviser provides a different value for the deal and the reasons for the difference.
  
  "Investors must have a continuous flow of information," Selvarany Rasiah, chief regulatory officer of Bursa Malaysia, told a media briefing on Thursday.
  
  These changes come in the wake of recent high-profile deals that have raised corporate governance concerns in Malaysia. Last November, Resorts World Bhd said it would buy a tenth of a digital gaming company from a company linked to its chairman and chief executive Tan Sri Lim Kok Thay. That deal was worth RM250 million.
  
  Another deal involved MMC Corp Bhd buying airport owner and operator Senai Airport Terminal Services Sdn Bhd for RM1.7 billion.
  
  Bursa Malaysia will also cut short the time needed to suspend shares and for company insiders to announce their share transactions.
  
  It will now take only five market days from three months previously to suspend the stock of a company that fail to publish its accounts on time.
  
  Trading halts will also be cut to just one hour instead of one trading session currently.

Oh yes!!!!

RPT is totally unfair to the minority shareholders.

And more so when the RPT deal itself utterly made no sense.

And yes, the examples on Resorts World and MMC Corp totally highlight why RPT stinks!

Again On Yung Kong Galvanised Steel's Quoted Investments.

Posted last Thursday, August 14, 2008, Listed Companies Investments: Yung Kong Galvanised Steel

Yung Kong announced its earnings just now. It lost some 6.2 million. However, I was more interested to see their quoted investments again.

Well total investments at cost was 42.2 million.

Total investments based at market value was 16.185 million.

Ahem.. paper loss of 26.015 million.

And again I repeat my issue as posted in Listed Companies Investments: Yung Kong Galvanised Steel

Firstly, don't you think that Yung Kong should give up its so-called unknown investments?

Secondly, don't you think there should be more transparency here and that it's only right that Yung Kong disclose exact information on their investments?

How?

Uchi: Am I Losing My Bashing Touch?

I received this set of comments which I thought I would like to highlight.

• SS has left a new comment on your post "More Questions China's Recovery":
  
  moomoo,
  
  No more "hentam" on Uchi ??? now already RM1.39 u know ?

Hmm.. 'hentam'? Bashing is it? :)

Let's look back in history.

I started writing about Uchi back in February 2006.

1. Monday, February 27, 2006 ROI on Uchi
2. Monday, February 27, 2006 ROI on Uchi: Part II
3. Tuesday, February 28, 2006 ROI on Uchi: Part III - the ESOS issue
4. Thursday, May 04, 2006 My Earnings has been Shrunk!

Those series of postings were based on ROI or as I define it as a review of investment. The assumption made that if I owned shares in Uchi, and since Uchi had been a one gem of an investment, what would I do? Would I hold it forever and ever in spite of the insane ESOS issue, which could ultimately shrink the company's earnings per share.

How? Did I 'hentam' Uchi or was I highlighting the danger in the potential earnings dilution caused by the ESOS?

Highlighting a concern equates to bashing?

On Feb 27th 2006, Uchi closed at 3.28. KLCI then was 928.

More than one year later, I wrote the following postings.

1. Saturday, September 22, 2007 Review Of Uchi Again
2. Monday, September 24, 2007 Uchi and its ESOS

That 24th September posting was interesting.

• SS said...
  If you know Uchi close enuf, you will know there is not many "VIP employees" inside Uchi that really need motivation to work. The main activities is coming from Uchi Optoelectrinics (M) Sdn. Bhd. This is a very small scale organization we are talking about here, don't tell me Ted Kao & Edward Kao need those ESOS for motivation, if you don't know who is Ted & Edward ? Better avoid this counter.

Hmm.. looks like SS made a bigger 'hentam'. LOL!

Anyway on 24th Sept 2007, Uchi last traded at 2.98. (on the 22nd Sep 2007, blog posting, Uchi was trading around 3.02.) while the KLCI was trading at 1317!!!

One can see the underperformance of Uchi versus KLCI from 27 Feb 2006 to 24 Sep 2007 in the chart below. Chart provided by yahoo finance.

Ok what happen next is more important.

The Malaysian market was in one grand of a bull run, which peaked around mid Jan 2008.

Let's see how Uchi performed from 27nd Feb 2006 to 31st Jan 2008.

And if my data is not flawed, to be even more accurate Uchi last traded at 2.07 on 31st Jan 2008.

As can see from the day I started highlighting the issue with the ESOS in Uchi back in Feb 2007, Uchi had tumbled from 3.00+ to 2.00. And this happened during a time when there was a massive bull run in the KLCI.

So how?

Now do I feel the urge to gloat on this issue? No. Frankly I do not see the reason why I should.

On Wednesday, February 25, 2009, I started reviewing on Uchi again. Yet Another Update On Uchi It was a brief review. I highlighted the decline in earnings or rather the spectacular earnings growth for Uchi had clearly ended. ( Chart of Uchi then: pix )

Uchi was trading as low as 75 sen!

The next day, I wrote Would You Buy Uchi For Its Dividends?

It was a simple yet extremely interesting investing situation. As said clearly in that posting,

• Based on yesterday's closing price, this proposed Tax Exempt Dividend is certainly interesting.

But the concerns were clearly undeniable. Sales and profits were now declining instead of growing! Cash were depleting too.

And since it was an interesting 'investing' scenario, it attracted a lot of feedback.

1. Wednesday, March 04, 2009 Reply To Would You Buy Uchi For Its Dividends?
2. Thursday, March 05, 2009 Reply To Radzian On Uchi Once More
3. Friday, March 06, 2009 More Feedback On Uchi
4. Monday, March 09, 2009 Last Words On Uchi For Now

In that posting, under the comments, I made the following last remarks. Why? Because it was getting rather tedious and the points made were the very same old points. Anyway, I wrote the following comments in that last posting.

• Radzian,
  
  Oh yes ,I am aware that your assumptions and estimates were based on GDP and exchange rate and this is exactly why we differ.
  
  Let me ask you, have you considered the issue of Uchi's main product and its relevancy under current market environment? Me? I have huge concerns.
  
  Quote: Not many people are honest and generous to share what they earn in their business, so I stick to those who are generous albeit they are falling due to appreciation of exchange rate and recession.
  
  Yes, that's true BUT I will NOT force myself to invest based on this reason alone!
  
  Have you really, really consider the fact that the dividends are plunging each year?
  
  And this looks like the 3 year in a row that Uchi's dividend has fallen. What if the dividend falls again next year?
  
  And if you would really want my opinion, my answer is that ...
  
  I will not invest in Uchi now for its dividends! I call it a PASS. And the reasons are so clear.
  
  1. Product relevancy is an issue.
  2. Plunging sales is an issue.
  3. Plunging profits is an issue.
  4. Plunging cash is a big issue.
  5. Plunging dividends is also an issue.
  
  And when you add in the fact that the owners had shown their utter greed in the shambolic ESOS, I am afraid that I would rather avoid this stock.
  
  Yes, integrity is the biggest issue! Make that point 6.
  
  That's my frank opinion.
  
  And if Uchi goes up, it goes up.
  
  It's not a problem at all for me.
  
  Missing this opportunity in Uchi would not cause me to lose sleep because I know very well that simply isn't an investment for me.
  
  And yes, it's never a crime to sit out and I would rather sit out than to risk my money just for the sake of the dividends.
  
  The concerns is simply too huge to ignore.

And if one bought as Radzian as suggested at 84 sen, one would be laughing all the way to the bank since Uchi is now at 1.39. ( Can see some comments here )

Actually, I find it so rather strange. Is talking about the pro and cons of a stock called bashing? Can't folks discuss on a stock? :D

And as usual, I also wonder, why no one wanted to thank me for highlighting the issue in the first place when I blogged Would You Buy Uchi For Its Dividends?. Uchi was trading between 0.775 and 82 sen on that day. :D LOL! Nah. I would never do that.

Do I feel silly for not buying? LOL! Nope. Would I lose sleep over it? Nope.

Why should I?

Is it a crime not to miss an opportunity? It it?

Say you are poker player and you always win playing poker. However, you do not like black jack cause you can't win in it. One day, you step into your casino. You see the players winning and shouting their ass off on the black jack tables. And you decide to forgo the opportunity to win on the black jack tables. Well is it a crime to miss this opportunity?

Anyway, since Feb, most markets had rallied. Most stocks have rallied too. Some even much better despite the weakness in their fundamentals. Is this not a fact? :D

So how?

When I started blogging on Uchi, it was 3.00+. It fell to as low as 0.75. All this because of my 'bashing'? LOL!

Now Uchi has climbed back up to around 1.39. Am I losing my 'bashing' touch?

LOL!

So amusing.

When one discuss about an issue, and when one is on the other side of the opinion, I guess one is a basher eh?

LOL!

More Questions China's Recovery

On FT Alphaville: Izabella Kaminska writes about China’s fake recovery

• Whatever the manufacturing indices may be telling us, the commodity picture tells a somewhat different story. Yes buying of copper and other materials is up in April. But how those materials are actually being used is far from clear.
  
  One major economic indicator of China’s rampant growth has always been its growing appetite for crude and petroleum products. And it is here that the picture seems to contradict the argument that a sustained recovery is already beginning.
  
  CBI China, an authoritative source on Chinese commodity import and exports, shows for one that China is suffering from the same product overhang affecting the rest of the world, and mainly the US.
  
  Gasoline demand may still be firm, but gasoil (aka heating oil) demand — mostly used in industry — fell 12.6 per cent in the first quarter of 2009. Prospects for May, meanwhile, look equally weak.
  
  As CBI write (emphasis ours):
  
  Propsects for May:
  Most players expected bearish gasoil market in may amid weaker speculative demand and increased supplies. Speculative demand will probably plunge if the market gains no more support in may, but end-user demand is not likely to grow much amid gloomy economy. Meanwhile, oversupply will probably remain as supplies grow. When supplies from PetroChina and Sinopec are not seen to change, CNOOC Huizhou refinery is estimated to supply 200,000-300,000mt of gasoil to East and South China per month. Without much support from international crude, PetroChina and Sinopec may cut prices to promote sales in some regions, where they failed to fulfill their sales targets in April.
  
  There is little possibility for China to import any gasoil in May in view of negative import margin and weak demand from the domestic market. Meanwhile, Sinopec’s and PetroChina’s gasoil exports may be little changed from the previous three months, about 200,000-300,000mt altogether.
  
  Sean Corrigan, chief investment strategist over at Diapason Commodities, also points to a continuing slide in China’s overall electricity consumption:
  
  Indeed, as we have noted before, China’s own electric power generation which at a 13.4% CAR had closely tracked industrial output growth of 13.7% for a decade - dipped again in April to leave the total for the last seven months a sizeable 8.5% below that for the equivalent period in 2007-08.
  
  Power consumption, of course, can be seen as a good proxy for the overall state of the manufacturing sector and ties neatly with the above reports of continued collapse in industrial demand for gasoil — particularly in the industrious south of the country.
  
  All in all, very contradictory to the view that a recovery has really begun.

Also see: Power generation in China down 3.55% in April - Xinhua

Chelsea Undone By Dodgy Decisions Against Barcelona!

The following clip just says it all.

A Quick Look At Southern Steel And The Steel Sector

April 2nd. On the Financial Edge.

• OSK says worst is over for steel mills
  Written by Financial Daily
  Thursday, 02 April 2009 11:13
  
  OSK Research strongly believes that the worst is over for steel mills despite the gloomy outlook for the sector and poor earnings visibility of steel mills.
  
  “Reiterate overweight considering the strong asset backing of the local steel mills that are trading in the range of 0.15 times to 0.7 times price over net tangible asset, which are mostly below their historical trough level at -1 standard deviation. We think that the long steel companies under our universe at least justify a neutral or buy recommendation,” it added.
  
  However, the research house reckoned that steel mills might be at risk of running into another loss-making quarter or two before returning to the black.
  
  “We think the potential cumulative losses are limited given the small downside on steel prices from current levels. We are keeping our buy recommendations on Lion Industries (TP: RM1.60), Southern Steel (TP: RM1.82), Masteel (TP: RM1.03) and Kinsteel (TP: RM0.55) but rate Ann Joo (TP: RM1.12), and Perwaja (TP: RM0.70) as neutral,” OSK added.
  
  Bloomberg recently reported that Chinese steelmakers have asked iron ore suppliers to temporarily cut prices by 40% until an annual contract price agreement is reached.
  
  OSK said based on the old annual contract price for iron ore and coking coal that was supposed to end Tuesday, the blast furnace (BF) cost structure has become much more expensive compared with electric arch furnaces (EAF), which enjoy cheap input from a sharp plunge in scrap metal prices.
  
  “Assuming the news is correct, the new raw material price will bring BF production cost only slightly higher than the 2007 level, thus improving the competitiveness of iron ore-based producers. The new price mechanism is also timely Ann Joo’s mini-BF project, as the new costing would render its investment in hot metal processes economically viable upon commissioning in 1QFY10,” the research house said.

April 17th. On the Star Business. Steel sector shows early signs of recovery, prices improve

• PETALING JAYA: Long product steel millers will soon get back on the road towards profitability as demand and prices have rebounded from their lows of recent months.
  
  Malaysia Steel Works (KL) Bhd (Masteel) managing director Datuk Seri Tai Hean Leng said prices of long steel products had bottomed out from their lows in December and January after rebounding 10% to 15%.
  
  “While prices are expected to remain range-bound until the fourth quarter, demand has improved by 15% in the past month,” he told StarBiz in an email reply.
  
  Inventory levels in the steel mills will continue to fall from all-time highs in November and December last year.
  
  One of the factors in this recovery is the significant withdrawal by China, a major player, from the regional export markets.
  
  China’s export volume for steel products had been reduced to about 5% of the country’s gross output as its domestic demand surged upon implementation of its US$586bil stimulus package, he said.
  
  According to a Bloomberg report, China’s steel exports fell almost 55% in the first quarter to 5.14 million tonnes from the corresponding period last year.
  
  Tai said countries like Turkey and Taiwan, as well as Malaysia would be able to fill the supply gap left by China as these countries enjoyed advantages in pricing and freight costs in their respective regions.
  
  Exports of steel from Malaysia are thus expected to resume and gradually increase.
  
  Masteel expects some price volatility in the second and third quarters, as higher steel prices would face resistance, and prices would fall again as additional supply rushes in to meet demand.
  
  Nonetheless, the worst was over for steel mills, Tai said, adding that demand would pick up substantially in 2010. “We do not expect any write-downs from the second quarter onwards.”
  
  An officer from a big steel mill, who declined to be named, said signs of recovery were visible although the market was still relatively soft.
  
  “Prices have stabilised somewhat, and inventory levels are also being steadily reduced as a result of the de-stocking exercise carried out over the pass few months,” he added.
  
  AmResearch said in a report that steel prices were lifted by huge reduction in global steel production, tighter scrap supplies and further consolidation in the Chinese steel sector.
  
  It cited US steel consultancy Global Steel Dynamics’ expectation that global steel production could drop 14% this year from last year’s levels. In the first two months, global steel production had fallen by 22% to 24%.
  
  The research house also noted that global prices of billets had risen by US$40 per tonne in the last two weeks, suggesting that recovery was gaining momentum as various countries’ stimulus packages, particularly from China, had started to take effect.
  
  OSK Investment Bank analyst Ng Sem Guan said demand and prices of long products had improved on rising construction and property activities.
  
  “China has removed VAT (value-added tax) for flat steel but maintained the 15% to 25% export tax on long products, which is an indication that they are in demand for domestic consumption,” he said.
  
  Nevertheless, steel companies are expected to post one to two more months of losses before showing gradual earnings recovery in the second half. “We expect full recovery to happen in 2010,” Ng said.

27th April, on the Financial Edge.

• Stimulus packages boosting steel demand
  Written by Tony C H Goh
  Monday, 27 April 2009 00:21
  
  KUALA LUMPUR: “Green shoots” appear to have taken a foothold in the global steel industry as demand rises amid the various economic stimulus packages worldwide, but volatility could last until the end of the year, according to analysts and industry players.
  
  “We saw a very drastic drop in demand in the fourth quarter of last year. In December, for example, demand by the market in general dropped by more than 90%,” said local steel maker Malaysia Steel Works (KL) Bhd’s (Masteel) managing director Datuk Seri Tai Hean Leng.
  
  He said the over-correction had led to a sharp decline in stockholdings and prices as production slowed.
  
  “While we have also experienced an increase in demand of around 10% to 15% (since the beginning of the year), the price of steel is still not attractive enough,” Tai told The Edge Financial Daily.
  
  He said although steel billet prices had appreciated as much as 15% in the international market in recent months in tandem with the rise in demand, there was still no clear sign of any significant change in demand locally.
  
  Local steel bars are now priced at around RM1,800 per tonne versus its peak of almost RM3,000 last year, while steel billet is trading at around US$375 to US$385 (RM1,339 to RM1,374) in the international market compared to nearly US$1,000 per tonne in July 2008.
  
  Meanwhile, in a reply to The Edge Financial Daily, Lion Industries Corporation Bhd’s spokesperson said there was some slight improvement in domestic demand, while “there is also demand for export but international prices are still depressed”.
  
  The spokesperson said “inventories have been reduced to match the sales and production level” and it planned “to maintain low inventories”. He added that any improvement would depend on demand and price.
  
  According to a recent report by AmResearch, Ann Joo Resources Bhd, the country’s largest steelmaker by market capitalisation, had received 40,000 to 50,000 tonnes of new orders from the overseas market in the past two weeks.
  
  It was believed to be the company’s biggest order in six months, and Ann Joo had also resumed full production at its plant this month after a two-month shutdown. Exports were expected to reach 50% of its sales this year, up from about 30% in 2008 as Malaysia’s economy slowed, according to AmResearch.
  
  Goldman Sachs Group Inc had recently raised its gross domestic product growth forecast for China to 8.3% this year from 6% previously, attributing the upgrade to the nation’s four trillion-yuan (RM2 trillion) stimulus package.
  
  “Overseas demand at least has shown sign of recovery and the China factor is one of the reasons for the apparent rebound in external demand. The country became a net importer of steel since March,” said an industry analyst from TA Securities.
  
  “While that is a sign that demand is gradually normalising, the volatility is expected to remain until the fourth quarter of this year. But next year could be a good year for steel players if the stimulus packages announced globally are effective,” said Tai.
  
  Last Friday, among the steelma-kers, Ann Joo dropped two sen to close at RM1.65, Masteel rose one sen to 87 sen, Southern Steel Bhd, Malaysia’s second-biggest steel maker, lost two sen to RM1.67. Lion Industries was up 5.5 sen to RM1.05, while Kinsteel Bhd gained 0.5 sen to end at 62 sen.

On Tuesday, 5th May 2009 Southern Steel sees light at the end of the tunnel

• The company hopes to see a modest recovery in the demand for steel products in the second half of this year with the kicking in of stimulus packages both locally and abroad
  
  SOUTHERN Steel Bhd (5665) expects demand for its products to recover in the second half of this year, driven by government measures locally and abroad.
  
  Countries around the world are trying to spend their way out of a recession. Malaysia for instance, is spending money on infrastructure like roads, to revive economic activity.
  
  This is likely to spur demand for steel products like steel bars and wire rods, products made by Southern Steel.
  
  The company's general manager and chief financial officer Koay Chong Beng said the steel industry is due to see some light at the end of the tunnel soon.
  "We hope to start seeing a modest recovery in the second half of this year with the kicking in of stimulus packages both locally and abroad," he told reporters after the company's annual shareholders' meeting in Seberang Prai, Penang.
  
  Steel was one of the commodities hardest hit by the financial crisis.
  
  "Prices and sales volume dropped more than 50 per cent within three months from September to November last year and the crisis badly affected the performance of all the companies within our group in the last quarter of the year," he added.
  
  The plunge in demand meant that its normal stock levels doubled to more than six months. It also bought the stocks when steel prices were high.
  
  As prices fell, Southern Steel had to write down the value of its inventory and it took a RM359 million hit.
  
  The company's chief operating officer Chow Chong Long said Southern Steel is committed to spend RM50 million this year to upgrade its Penang facility.
  
  "Our inventory levels are currently the lowest among the country's five integrated steelmillers.
  
  "Our term loans which total US$25 million (RM88 million) will be fully paid off by August," said Chow.

Last night Southern Steel announced its earnings.

Revenue plunged and losses were huge.

Of course, some would argue that the market is already discounting this 'bad; news and would say that the losses were already as expected. :p2

Of course, some would also say that the way the market is discounting the bad news is rather excessive and that the massive run in some steel stocks simply isn't justifiable. :p2

The following chart shows the massive price movement in Southern Steel recently.



How now brown cow?