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This division is involved in the manufacturing of stainless
steel welded pipes and butt-weld fittings, carbon steel welded
pipes and hollow sections, provision of shearing and slitting
services as well as trading of stainless steel plates. The
revenue contributed by the steel division is approximately
84% of the total Group revenue in FY2008. The steel division
achieved revenue of RM380.40 million, a decrease of 6%
from the previous financial year's revenue of RM403.23
million. The profitability of the division is reduced from a profit
before taxation of RM26.90 million in FY2007 to RM1.31
million in FY2008.
Stainless Steel Division - Manufacturing
With the sharp decline in global stainless steel prices, the
performance of the stainless steel division during the financial
year under review has been adversely affected. The division
recorded revenue of RM234.42 million in FY2008, a decrease
of 4% from RM244.10 million in FY2007. It achieved a much
lower profit before taxation of RM0.16 million compared to
RM17.23 million in FY2007.
In the domestic market, the division experienced slower
demand from various industrial segments during the first half
of FY2008 as most of the end users and stockists withheld
their orders in anticipation of lower prices in a declining
market. Surging crude oil price in the first half of 2008 had
exerted inflationary pressure on almost all industries. The
division's operational costs had increased with the increase
in electricity tariff and transportation costs.
To cushion the weaker overall demand, the division shifted
its focus to the treated water sector, in particular the usage
of stainless steel pipes for water meter stand, communication
and service pipeline sections throughout Malaysia. In
addition to stockists, we also fostered closer relationship with
fabricators who manufacture pressure vessels and related
products for worldwide oleochemical and biodiesel players.
Since the first quarter 2008, the implementation of various
prominent domestic infrastructure and construction projects
have slowed down. We believe this is temporary and the
development in oil and gas, palm oil, oleochemical and
water sectors in Malaysia should augur well for our products
in the long run.
Export sales have been encouraging, and saw increased
contribution to 70% of total sales. The division continued
to maintain its leading position in traditional international
markets such as the United Kingdom, Canada, South Africa,
USA and Australia. The diversified earning base will enable
us to cushion reduced demand from any single economy.
The recovery in stainless steel coil prices since end 2007
had increased the demand for our core products, which
saw stainless steel grade 304 and 316L average price
appreciated 18% and 10% respectively from Dec 2007
to April 2008. We took the opportunity to strengthen our
marketing network in the fast growing ASEAN region, such
as Singapore, Indonesia, Thailand and Vietnam in order to
broaden our earning base.
The recent volatility in the commodity derivative market has
distorted actual supply and demand forces in the underlying
metal market. Prices of major base metal like nickel, steel,
copper, platinum and zinc have slid by 35% to 45% due to
broad sell-off worldwide.
As a result, stainless steel prices for Grade 304 and Grade
316L declined further from average of USD3,500 per tonne
and USD6,080 per tonne respectively in July 2008 to reach
their respective recent lows of average USD2,950 per tonne
and USD5,350 per tonne in October 2008. We anticipate a
gradual recovery of stainless steel prices in the first quarter
of 2009 as underlying demand remains strong.
We will embark on expansion programmes to achieve greater
economies of scales and remain competitive. In our effort to
improve quality and product certification, we have obtained
Product Registration Approval Certificate from Suruhanjaya
Perkhidmatan Air Negara (SPAN) in 2008. This achievement
will enhance our visibility and positioning in the water services
industry in Malaysia.
Carbon Steel - Manufacturing
In tandem with rapid appreciation of carbon steel prices
worldwide across all range of steel products in the first
half of 2008, the carbon steel division achieved a good
performance in FY2008. The division registered revenue of
RM75.90 million in FY2008, an increase of 32% compared
to RM57.36 million in FY2007. The division's profit before
taxation improved by more than 520% to RM8.91 million
as compared to a profit before taxation of RM1.43 million
The demand for carbon steel pipes and hollow sections was
relatively soft in the first half FY2008 as the influx of imported
hot rolled pipes from neighbouring countries had disturbed
demand-and-supply situation. The strong demand since
December 2007 which hit record highs towards end June
2008 led to great improvements in our end products' selling
prices and sale volume in the second half of FY2008. We
capitalised on this upward trend by increasing our production
output and sales volume. Our timely procurement of raw
material at right prices and sufficient stock level enabled
us to capitalize on the rising demand which contributed
significantly to our profitability.
The strong demand came from domestic building and
construction, automotive, engineering and furniture
industries where users quickly took position before material
cost accelerated further. The surge in demand from stockists
and increase in iron ore prices worldwide, which is a basic
feedstock for carbon steel, further tightened the supply of
steel globally in the first half of 2008.
The carbon steel prices started to trend downward from
Going forward, we expect carbon steel raw material prices
to enter into a volatile phase as most of the industry players
were over-stocking with high raw material inventory. The
de-stocking exercise is estimated to take approximately 5 to
6 months to digest overhang positions and excessive volume
built up by industry players since early 2008.
Against this backdrop, we adopt a dynamic approach in
our business strategies through continuous improvement
in our inventory control system, timely procurement of raw
materials and identification of new markets with higher profit
Although implementation of key infrastructure and industrialrelated
projects have slowed down amid an uncertain near
term economic outlook, we believe underlying demand for our
carbon steel products should recover sooner than expected
as the products in the market required to be replenished for
implementation of various development plans.
Stainless Steel Service Centre - Trading & Services
The Group's steel service centre experienced a dip in both
its revenue and profitability in FY2008. It reported revenue of
RM70.07 million in FY2008 compared to RM101.77 million
in FY2007, a decrease of 31%, and suffered a loss before
taxation of RM7.76 million as compared to profit before
taxation of RM8.24 million in FY2007.
Oil and gas, water, bio-diesel and oleochemical industries will
continue to drive the demand. The centre's strong position
in niche markets in providing wider stainless steel plates
up to 2m width and thicker plates ranging from 9mm to
12mm will help improve financial performance in the coming
Bedding Division - Malaysia
In FY2008, the bedding division's revenue remained at
RM35.41 million as compared to RM35.35 million in FY2007.
Profit before taxation of RM2.62 million was 94% higher than
RM1.35 million achieved in FY2007.
The impressive growth was made possible via implementation
of effective marketing strategies and shifting of business
orientation to strengthen our marketing channels other than
our conventional Dealer Market segment. Dealer Market
segment remains a dominant and major revenue contributor
to us. It contributed approximately 45% of total revenue for
past two financial years. A series of pragmatic sales and
marketing strategies were launched during the financial
year under review which included intensive joint promotion
initiatives with leading international distribution chain Amway,
introduction of specific house brand products at major
hypermarkets to reach out to consumers and uplifting the
performance of Project Market segment.
Our Project Market segment registered stronger revenue
contribution than last financial year. We managed to increase
our market share in a very competitive market and strengthen
our position as a key player. However, the recent increase
in raw material cost might erode our profit margin and our
Project Market segment's performance might be affected in
view of the uncertain economic development.
Our tie-up with Amway led to more than 45% growth in
revenue in the last financial year. We received overwhelming
responses from Amway's customers through attractive
promotional activities. With rising Amway MLM distributor
membership, on-going promotional activities and newly
introduced products, Amway venture is likely to become one
of our significant revenue contributors in the future.
We have expanded our distribution network aggressively in
the mid-premium segment in Sabah & Sarawak. We carried
out warehouse sales throughout the year to increase revenues
especially during low seasons.
The hypermarket businesses under our Mass Merchants
segment recorded significant reduction in revenue in FY2008.
This segment's profitability had been affected by keen market
competition amongst hypermarkets, escalating raw material
cost and resistant from hypermarket operators to allow upward
price adjustments. Nevertheless, we believe this segment's
future outlook remains favourable with rising number of
hypermarkets to be opened up in the near future.
Our Fibre segment under Eurocoir suffered losses due to
fierce competition in polyester fibre business and small
market size. The losses over the years have eroded the
bedding division's profitability. We have taken a decisive
step to close down the Fibre segment in January 2008 to
curb further losses.
In view of the tougher market environment, we plan to
introduce more new products and intensify our marketing
efforts in the coming financial year. We look forward to widen
our market in the South East Asia region.
The China Division comprises manufacturing of bedding
products and furniture, steel wire and supply of electricity
power and steam. All business segments under this division
are undertaken by way of joint ventures which are either
subsidiaries or associates of the Group. The profitability
has reduced substantially due to high raw materials cost,
imposition of export duty and tighter regulatory framework
in domestic market.
The bedding segment in China continues to operate under a
very competitive market environment. We have over the years
introduced more innovative products, identified new niche
markets, built up product branding and introduced product
replacement approach to defend our market share. We have
established a separate Centralised Marketing Unit (CMU)
in March 2008 to assist formulating an overall marketing
framework for all joint venture bedding companies and
specific marketing strategy tailored to individual joint venture
company. CMU will coordinate strategic marketing plan
and work schedule of all joint venture companies. We aim
to achieve better production and operation cost reduction,
expedite market expansion and improve bedding venture
profitability in the long run.
The manufacturing of steel wire segment registered higher
revenue in FY2008 and achieved a lower profitability mainly
due to rising of raw material cost and imposition of 5%
Our power plants' business suffered from high coal price
and transportation cost. The increase in the selling price of
power plant steam partly cushioned the escalating costs.
Further expansion of our steam customer network and
execution of efficient production management will improve
steam generation business performance. We have optimised
the usage of coal mud to reduce the operation cost of our
We expect more challenges to our businesses due to
anticipated slowdown in China's economy. We believe our
years of experience and established network in China will
help us rise above these challenges.