Highest growth in profit after tax over three years
INDUSTRIAL PRODUCTS & SERVICES
CSC Steel Holdings Bhd - Capitalising on strong demand
At the end of April last year, iron ore — the key ingredient to make steel — hit a record high of US$193.85 per tonne on the S&P Global Platts Iron Ore Index, surpassing the previous high of US$193 that was recorded on Feb 15, 2011, during the commodity boom then. At the same time, both the Iron Ore Futures on the Dalian Commodity Exchange and Singapore’s SGX TSI Iron Ore Futures hit historic highs, gaining more than 100% over a 12-month run.
The entire flat steel value chain — hot rolled coils, cold rolled coils, galvanised iron, pre-painted galvanised iron and electro galvanised coils — gained momentum on the back of a global supply shortage and strong manufacturing demand, buoyed by efforts to revive economies after the Covid-19 pandemic. Much of the demand came from China.
Against this backdrop, CSC Steel Holdings Bhd’s net profit, which was a modest RM21.9 million in FY2018, jumped to a respectable RM34.8 million in FY2019, then strengthened to RM37 million in FY2020, before jumping 132.7% to RM86.1 million in FY2021. The gains reflected an adjusted three-year compound annual growth rate (CAGR) of 30%, based on the awards methodology, while the adjusted CAGR for its shareholders’ return over the same period came to 23.2%.
The stellar performance made CSC Steel — which is 46.3%-controlled by China Steel Asia Pacific Holdings Pte Ltd, a unit of Taiwan’s China Steel Corp — a joint winner of The Edge Malaysia Centurion Club Corporate Awards 2022 for Highest Profit After Tax Growth in the industrial products and services sector.
CSC’s return on equity (ROE), which was 4.3% in FY2019, rose marginally to 4.4% in FY2020, then strengthened considerably to 9.9% in FY2021. The flat-steel player’s weighted ROE over this period, based on the awards methodology, was 7.1%.
Given that CSC’s operations were halted for almost three months, resuming only in late August 2021 because of the Covid-19 pandemic and subsequent lockdowns, the group’s financial performance in FY2021 is even more impressive.
CSC, which has consistently been paying out dividends, continued to reward shareholders with a final dividend of 14 sen a share, or RM50.7 million in total, for FY2021 — its highest payout since 2009, and double the seven sen a share, or RM25.85 million, it paid out as dividends in FY2020.
It is also noteworthy that since its shares were first floated at end-2004 (as Orna Steel Holdings Bhd), CSC has been in the red in only one financial year — FY2014 — because of a provision for doubtful debts of RM12.9 million owed by an associate. As at end-March 2022, the company’s market capitalisation was RM605.7 million.
In its annual report for FY2021, CSC says, “Our parent company, China Steel Corp in Taiwan, continues to be our mainframe and backbone from which stems our competitive edge, advances in technology and innovative products to generate our revenue,” which could explain CSC’s resilience or strength compared to other players.
For the first six months of FY2022, CSC chalked up a net profit of RM29.12 million on revenue of RM974.66 million.
“For the first half of the year ended June 30, 2022, the group’s total revenue increased by 32%, or RM234 million, owing to higher steel prices, despite the sales tonnage in decreasing trends. The group’s profit before tax, on the other hand, has shown a decrease by 25%, or RM13 million, owing to the increase in production costs such as materials, labour and other variable overheads,” CSC said in its performance review.
As at end-June this year, CSC had cash and cash equivalents of RM222.73 million, while its short-term borrowings were RM22 million, with no long-term debt commitments. It also had retained earnings of RM472.8 million.
With its strong parent and solid balance sheet, it is no surprise that CSC has fared so well.