CSC Steel cautioned that prices of steel products have been trending lower since June 2017 and this may impact its profitability in the third quarter as a result of sales margin squeeze.
KUALA LUMPUR: CSC Steel Holdings Bhd
's earnings fell nearly 51% to RM14.44mil in the second quarter ended June 30, 2017 as it was impacted by higher raw material cost and lower production volume, warns of margin squeeze.
The steel producer cautioned that prices of steel products have been trending lower since June 2017 and this may impact its profitability in the third quarter as a result of sales margin squeeze.
It announced to Bursa Malaysia on Friday the earnings fell from RM29.32mil a year ago. Its revenue however, increased 18.8% to RM320.54mil from RM269.71mil. Earnings per share were 3.91 sen compared with 7.95 sen.
Commenting on the financial performance, CSC Steel said the higher revenue was mainly due to significant increase in selling prices of its steel products albeit at significantly lower sale volume.
For the first half, its earnings fell 19.1% to RM30.94mil from RM38.27mil in the previous corresponding period. The decline in earnings was mainly due to higher production cost as a result of significantly higher raw material price and substantial drop in sale volume of higher margin steel product.
However, revenue rose 28.4% to RM630.29mil from RM490.71mil primarily due to significant increase in selling prices of all steel products albeit at marginally lower sale volume.
When compared with the first quarer, CSC Steel said the Group’s revenue rose 3.4% from RM309.9 mil in the preceding quarter to RM320.5mil in Q2 due to significant increase in selling prices of all steel products despite a significant drop in their sales volume.
It reported a significantly lower profit before tax of RM18.8mil in Q2 from RM22mil in Q1 due mainly to an inventory write down of RM6.8mil due to valuing of some affected inventories to net realisable value as selling prices for third quarter are softening.
On the outlook, CSC Steel said demand for the Group’s products is expected to recover in the third quarter of this year as economic activities have normalised after the Hari Raya holidays.
“However prices of steel products have been trending lower since June 2017 and this may impact on our profitability in the third quarter as a result of sales margin squeeze.
“Internationally, the demand for steel is expected to be adversely affected by the effect of the Chinese Government’s move in clamping down on bank lending in its bid to address the country’s soaring debt problem,” it said.
It also stated the launch of national security investigation into steel imports by Trump Administration to curb foreign steel imports into US have posed a great concern to Malaysian steel players as the excess steel supply may be diverted to countries in South East Asia especially Malaysia.
“However, the price of steel has been moving up lately due to higher cost of iron ore and coking coal. If the increasing price trend is sustainable, this will bode well for the group in the coming quarter. Barring any unforeseen circumstances, the group is cautiously optimistic to achieve
profitability for the rest of the year,” it said.
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