SMPC seeks to boost earnings with high-end steel products
17 Sep 2015, 09:58 am
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GEORGE TOWN: SMPC Corp Bhd is moving away from its traditional business of manufacturing and trading scrap metal to high-end steel products to improve its earnings for the current financial year ending March 31, 2016 (FY16).

Its executive chairman Ooi Chieng Sim said a strategic decision to change the group’s focus is due to weaker selling price in trading scrap metal for recycling.

“We believe that the scrap metal business has become a sunset business. On the other hand, high-end steel products offer better margins. While we may not be able to control our revenue as this is determined by global steel prices, we can control our costs,” he told the digitaledge DAILY in an interview.

“[However], I don’t think the group will be seeing a phenomenal jump in earnings [due to the shift in strategy]. But what I can say is that our performance in FY16 will improve [compared with] FY15, driven by contribution from [these] high-end steel products,” Ooi said.

The high-end products will be used to service the oil and gas (O&G) industry, as well as the retail and commercial industries.

“For example, we currently supply high-end metal products for drilling activities in the O&G industry, and metal roofing for Tesco and Mydin hypermarkets in Malaysia,” he said.

SMPC reported a 37.8% drop in net profit to RM720,000 for its first financial quarter ended June 30, 2015 (1QFY16) from RM1.16 million a year ago, while revenue slipped 23.1% to RM26.67 million from RM34.7 million in 1QFY15, hurt by weak global steel prices. The implementation of the goods and services tax also affected the group.

SMPC also manufactures steel furniture and plans to capitalise on the weak ringgit against the US dollar by tapping into the export markets for its furniture.

“Previously, our target market for our furniture business was the local market because the export market for steel furniture was dominated by China. But given the slowdown in China’s economy and the weak ringgit, we have decided to export our furniture to markets like India and Europe,” said Ooi.

He said the group plans to manufacture polyethylene terephthalate (PET), which is a thermoplastic polymer used to make water bottles and fibres for clothing.

“We plan to venture into the PET business as it generates high margins. We have identified a business partner for this venture. An announcement will be made soon on details of this development,” said Ooi.

Besides its core steel business, the group had initially planned to develop its 27.9-acre (11.29ha) plot of land in Kedah. However, this project [is on hold] for now, due to the soft property market condition.

“We have not scrapped our property development plans. We will first assess the country’s economic situation. If it recovers, we will start developing our land bank, or maybe look for a development partner for our property development activities. In the meantime, we will look at acquiring more land bank,” said Ooi.

Currently, the group’s total land bank stands at some 75 acres located mainly in Penang, Kedah, Shah Alam and Kuala Lumpur.

Ooi, who joined the SMPC board as an executive director in 2012 and was appointed its chairman in November last year, said the group is looking at a clean slate with its proposed name change to Atta Global Group Bhd.

“We decided to change our group name to Atta Global [as] the name SMPC did not have a good reputation in the past in terms of our credit reliability rating. However, that has changed now as we have reduced our debt significantly and intend to keep Atta Global debt-free,” said Ooi.

The group managed to restructure most of its debt by reducing its borrowings over the past four years from RM98.61 million in FY11 to RM13.99 million in FY15.

SMPC (fundamental: 1.25; valuation: 2.1) shares were last traded at 58 sen, with a market capitalisation of RM41.23 million.


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This article first appeared in digitaledge Daily, on September 17, 2015.

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