Greetings, fellow investors! Today, we’re diving deep into the latest financial report from Southern Steel Berhad (SSB) for its third quarter ended 31 March 2025. This report offers a fascinating glimpse into the company’s journey, revealing a mixed bag of operational challenges in its core business, yet a significant positive shift driven by strategic maneuvers and the resolution of a long-standing legacy issue. While the steel industry continues to navigate choppy waters, SSB’s recent actions signal a determined push towards a stronger future.

The headline figure that immediately catches the eye is a return to profitability for the quarter. However, as we peel back the layers, it becomes clear that this positive swing is largely attributable to a substantial gain from a discontinued operation, specifically the settlement of a major arbitration case. Let’s break down the key figures and what they mean for SSB.

Core Data Highlights: Unpacking the Numbers

Understanding SSB’s performance requires looking at both its continuing operations and the impact of the discontinued hot rolled coil business. The company has made some notable shifts in its financial landscape.

Revenue and Profit Overview (Individual Quarter)

For the third quarter, SSB’s continuing operations faced headwinds, primarily due to lower selling prices in a challenging market. Despite this, the overall profit for the period marks a significant turnaround from a loss in the prior year.

The lower revenue for the current quarter, a 11.8% decrease compared to the same quarter last year, was mainly due to a decline in selling prices, despite stable sales volume. The loss before taxation from continuing operations widened significantly from RM2.4 million to RM41.9 million, primarily impacted by a substantial impairment of plant and machinery amounting to RM31 million. However, the total profit for the period of RM2.8 million represents a strong positive swing from a RM6.3 million loss in the prior year, largely thanks to a significant profit of RM43.6 million from a discontinued operation.

Year-to-Date Performance

Looking at the cumulative nine months, the trend of lower revenue from continuing operations persists, and the loss before taxation has deepened. However, the discontinued operation continues to provide a substantial boost to the overall bottom line.

Year-to-date revenue saw a 10.2% decline. The cumulative loss before taxation from continuing operations escalated from RM48.6 million to RM81.0 million, again primarily due to the impairment of plant and machinery. Despite this, the overall loss for the period narrowed significantly from RM56.7 million to RM30.4 million, demonstrating the positive impact of the discontinued operation’s gains (RM47.8 million year-to-date).

Financial Health Check (Balance Sheet)

SSB’s balance sheet reflects some notable changes, particularly in its cash position and equity, following recent corporate exercises.

The significant increase in Total Equity and Cash & Cash Equivalents, coupled with a substantial decrease in Total Liabilities, is largely a result of the recent corporate proposals, including the issuance of new shares to Green Esteel Pte. Ltd. and a private placement. This has recapitalised the company and strengthened its financial base. The decrease in Net Assets Per Share is primarily due to the increase in the number of outstanding shares following these issuances.

You can imagine a chart here illustrating the significant jump in cash and equity, and the reduction in liabilities, providing a clear visual of the recapitalization.

Risk and Prospect Analysis: Navigating the Future

The steel industry remains a challenging arena. SSB acknowledges that the regional and local steel industry is grappling with weak demand, structural overcapacity, and declining prices. The recent US trade policies add further layers of uncertainty, and local steel demand continues to be soft.

However, it’s not all gloom. Major infrastructure projects in Malaysia, such as the Penang LRT and numerous data centers, are expected to provide some much-needed relief and stimulate demand for steel products. This offers a glimmer of opportunity amidst the prevailing market softness.

SSB’s Strategic Response

In response to these dynamics, SSB is actively pursuing a multi-pronged strategy:

• Operational Efficiency & Cost Management: A core focus remains on enhancing internal operations and controlling costs to improve margins in a competitive environment.
• Market Expansion: The company is proactively exploring new market opportunities, both domestically and internationally, to diversify its revenue streams.
• Downstream Strengthening: SSB has identified strategic partners to bolster its downstream activities. A significant step in this direction is the proposed disposal of a 55% stake in Southern Steel Mesh Sdn Bhd to BRC Asia Ltd, Singapore. This move will transform Southern Steel Mesh into an associate company for SSB, potentially allowing for a more focused approach on core steel production while benefiting from a strategic partnership in the mesh segment. Further restructuring of its downstream business is ongoing.
• Recapitalisation & Debt Reduction: The recently completed share issuance and private placement have significantly strengthened SSB’s balance sheet, reducing borrowings and providing capital for future initiatives, including upgrading plant and machinery. The utilization of proceeds shows a substantial portion allocated to repayment of bank borrowings.
• Legacy Dispute Resolution: The successful settlement of the long-standing arbitration with Danieli has brought in substantial cash proceeds (over EUR 35 million received so far, plus USD 119,233), resolving a significant legal and financial overhang. This is a critical positive development, contributing to the reported profit for the quarter.

The Board expresses cautious optimism regarding its prospects for the upcoming quarters, believing that these strategic actions will position the company for a stronger future, despite the persistent challenges.