| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Performance Review
A recent investment bank research report indicates that the company recorded a core net loss of RM242.7 million for FY25. This figure unfortunately surpassed both the firm’s own and consensus full-year loss expectations of RM222.0 million and RM224.0 million respectively, indicating a worse-than-anticipated financial outcome.
This underperformance was primarily attributed to the prolonged weakness in average selling price (ASP) recovery, which led to compressed margins. Compounding these issues were widening losses in the green technology division, which recorded a loss before tax (LBT) of RM34.0 million in FY25, significantly higher than RM8.7 million in FY24. Contributions from the downstream steel segment also weakened, with profit before tax (PBT) declining to RM2.7 million in FY25 from RM9.1 million in FY24.
Year-on-year, revenue saw a 14.0% decline to RM2.2 billion, a consequence of weaker sales tonnage and softer ASPs across all product categories. This deterioration resulted in a 4.9% widening of the company’s core net loss to RM242.7 million from -RM231.4 million in FY24. Quarter-on-quarter figures mirrored this trend, with revenue softening by 13.9% and the core net loss widening by 14.1%, driven by lower overall sales tonnage and ASPs in both the upstream and downstream steel divisions.
Outlook and Strategic Initiatives
Management highlights that the regional and domestic steel sectors are expected to remain challenging in the near term. This environment is characterized by persistent excess production capacity in China, which continues to exert downward pressure on regional steel prices. Demand conditions in China’s construction and property sectors remain subdued, limiting the pace of any meaningful ASP recovery and keeping competitive intensity elevated across export markets.
On the domestic front, while steel demand is projected for gradual improvement, supported by major infrastructure projects and government development initiatives, management anticipates a measured rather than sharp recovery. This backdrop suggests continued intense price competition and margin compression for industry players, particularly in upstream steel segments with limited pricing power.
In light of the challenging operating environment, the group has initiated several strategic initiatives aimed at unlocking value, strengthening its balance sheet, and supporting long-term growth. These include monetizing a 135.53-acre freehold industrial land in Prai for RM800 million, with proceeds earmarked for working capital and future expansion. The group is also expanding into steel-adjacent businesses through downstream integration in the automotive supply chain and vertical integration into engineering and infrastructure projects within the electrification sector. Furthermore, it is exploring regional steel demand opportunities, including in Singapore, and enhancing value from its existing industrial property portfolio.
Investment Bank’s Rating and Target Price
Given the continued underperformance and sustained weakness in steel ASP, the investment bank has revised its ASP assumptions lower for certain steel products across FY26-27F. Consequently, its earnings forecast for FY26-27F has been revised downward by 19.1% and 31.4% respectively, with a new FY28 core earnings forecast of RM41.1 million introduced.
The investment bank has trimmed its target price to RM0.51 (from RM0.64 previously), based on the same target PER of 10x, and has maintained a Sell recommendation on the stock. The last traded price was RM0.50.
