The series of corporate actions undertaken by Lion Industries Corp is puzzling her shareholders
Lion Industries Corp had disposed of its 100% equity
interest in Antara Steel Mills Sdn Bhd for USD 128 million cash to Esteel
Enterprise Pte Ltd. Antara Steel Mills owns a hot-briquetted iron (HBI) plant
in Labuan.
For your information, Hot Briquetted Iron (HBI) is a relatively new product, developed in the past 25 years, as a supplement for pig
iron and scrap in the electric furnace steel mill.
The transaction is priced at 5x the price to book ratio and
5.08x the P/E Ratio of FY 2019. This transaction is expected to increase the
net asset per share by approx. 63.62 cents. If you are expecting a special
dividend from Lion Industries, you are going to be disappointed. The proceeds
of the disposal will be used as working capital and new investment opportunities.
Also, Lion Industries has ceased declaring dividends since FY 2013. Even in the
good years like FY 2017 or FY 2018, no dividends are declared.
[Outlook for Lion
Industries remain bleak]
Lion Industries Corp had been undergoing a series of
restructuring since 2018.
In Jul
2018, Lion Industries acquired a flat steel manufacturing plant in Banting for
RM 537.73 million
In Jan
2019, Lion Industries disposed of its entire 50% stake in Singapore based
company, Angkasa Amsteel to South Korea steel manufacturer, Daehan Steel for
SGD 26.65 million.
We do not know what the companys management is planning.
The company has been selling some assets and acquiring some assets. No long-term strategic plan has been discussed in its annual report too. When we look
at Parkson Holdings Bhd, the company managed by the same management, it is very
hard to believe that Lion Industries Corp can be turned around when the
business environment is harsh and the management remains the same. Parkson
Holdings Bhd's share price and gone all the way down in the past 10 years and
its financial performances are deteriorating.
The share price performance of Lion Industries today has
further proved that investors lack confidence in this company. Although the
disposal will generate a huge disposal gain, the share price moves by a mere 4
cents (14%) today, still way below its NTA of more than RM 2.
In short, I will avoid companies like Lion Industries Corp
Bhd. On a contrary, Ann Joo Bhd and Masteel are good examples of how management
should convey their message to the public.
[Positive view for
steel industry]
Looking at a broader landscape, we are quite bullish on the
steel manufacturing industry. A few days back, Malaysia Finance Minister,
Tengku Zafrul announced that there is so much monetary policy can do. The
government will start implementing fiscal policy to revitalize the local
economy. In layman's terms, it means the government had printed enough money and
will start some mega projects to jump-start the economy. This is definitely
something positive for steel and cement counters.
[Consolidation wave
among regional steel manufacturers]
Besides the local factor, we are also seeing a wave of
consolidation among the region steel players.
The acquirer of Antara Steel Mill, Esteel Enterprise Pte Ltd
(Esteel) is owned by 2 China nationality investors, You Zhen Hua and Liu Bin
via their investment vehicle Advance Venture Investments Limited (80.1%) and
Toptip Holding (19.9%)
In Sept 2017, Esteel made a mandatory general over to
acquire Singapore-listed BRC Asia Ltd at SGD 0.925 per share. BRC Asia is a
company with more than 80 years of history and is involved in manufacturing rebar,
mesh wire, and pre-fabricated iron cage. In July 2018. BRC Asia acquired another
Singapore listed steel trading company, Lee Metal for SGD 200 million.
We believe more acquisitions will come by in the near future
and the regional steel industry will be shaped differently from the fragmented
landscape today. Ann Joo Bhd and Southern Steel Bhd's previous plan to merge is
the best indicator to prove our theory. If you are looking to gain exposure in
this industry, focus on the big players. Small players will be squeezed out
from the market for sure.
