Hiap Teck expects better second half in FY16

SHAH ALAM: Hiap Teck Venture Bhd expects to perform better in the second half of its financial year ending July 31, 2016 (H2'16), premised on the improvement in steel prices, the strengthening ringgit and the suspension of its production in joint venture company Eastern Steel Sdn Bhd.

Hiap Teck saw a net loss of RM60 million in H1'16 , mainly due to losses in Eastern Steel associated with trial production and weak market conditions. Eastern Steel is a joint venture between Hiap Teck and Shougang Group of China.

Hiap Teck executive director Foo Kok Siew said the loss incurred in 1H'16 was also due to foreign exchange (forex) factors, as Eastern Steel saw substantial forex losses because of shareholders' loans in US dollars.

"With the improvement in the prices of steel, the strengthening ringgit and the suspended production in Eastern Steel to minimise losses, the performance in 2H will be better than 1H," Foo told reporters after its EGM here last Friday.

He said steel prices have increased 30%-50% since February, but noted that they are still below the long-term average. "With the improvement in prices, as well as higher volume and higher average price, we can see improvement in revenue growth numbers," he added.

However, Foo said he is unsure whether the group will be profitable in FY16, as much has to be done to cover the losses in the first half.

Hiap Teck saw a net loss of RM77.09 million in FY15. The downstream steel maker suspended production in Eastern Steel in October 2015 to minimise losses.

"The board reviews the market situation every quarter. If the prices are sustainable and it makes sense for us to restart the plant, we will," said Foo.

He said there is less steel products coming in from China and local producers are selling more.
"The worst is over. The bottom (for steel prices) has been reached. Steel prices will go up and correct to a certain extent but will be sustainable over the medium term."

Hiap Teck was issued an unusual market activity query by Bursa Malaysia on April 29. To this, Foo said he suspected that the rise in price and volume of its securities was due to the increase in steel prices.

"It's not only us. When the steel market improves, all the steel counters double up and that attracted the attention of the regulators," said Foo.

Earlier, at the EGM, shareholders approved Hiap Teck's proposed rights issue to raise at least RM79 million.