KUALA LUMPUR (July 29): Things are looking up for Prestar Resources Bhd which has been relatively under the radar, as the steel industry lost its shine on weak margins and slow demand.

This year, the steel products and equipment maker’s well-established highway guardrail business made inroads into the growing East Malaysian market.

Prestar is also future-proofing itself by positioning into providing value-added automated storage and retrieval system (AS/RS) solutions, together with industry leader Murata Machinery, Ltd (Japan) (Muratec).

East Malaysia venture adds to peninsula highway guardrail bids

Early this month, Prestar announced a RM80 million job win for the supply of highway guardrails for part of the 1,076km Sarawak portion of the Pan-Borneo Highway.

This provides the group a presence for future prospects in Borneo, where the Sabah portion of the 786km highway is also up for grabs over the next few years.

There are also prospects for connecting coastal roads, while Indonesia’s planned relocation of its capital from Jakarta to Samarinda City in Kalimantan provides an assurance of job continuity in the long run, said Prestar group managing director Datuk Toh Yew Peng (pix).

He said the group’s experience in West Malaysia and Indonesia would enable it to capitalise on the opportunities there.

“Overall, the prospects in East Malaysia could easily last for another five to 10 years," he added.

In Peninsular Malaysia, Prestar is eying a piece of the Central Spine Road, as well as Klang Valley highway projects like DASH, SUKE, and Setiawangsa-Pantai Expressway (formerly known as DUKE-3) over the next few years.

Asked to put a figure on the bids, Toh explained that each kilometre of highway entails an average of RM150,000 worth of the supply of its products.

“In Sarawak, we secured five of 10 packages,” he said in citing an example. Prestar is among three approved suppliers for Sarawak Pan-Borneo. Toh maintains that Prestar controls a 50% market share in the peninsula.

Outside Malaysia, Prestar supplies guardrails to Cambodia, Sri Lanka, Indonesia and Papua New Guinea, Brunei. However, Malaysia remains the major contributor of 90% of the guardrail segment’s top line.

There is also consistent demand for highway maintenance due to accidents and road widening works, said Toh. The group has supplied products for the maintenance of the North-South Expressway for eight years, bringing in over RM6 million revenue annually.

Presently, the guardrail segment contributes around 15% of the group’s annual topline of around RM400 million, while steel pipe manufacturing remains Prestar’s core business, contributing about half of the total.

Higher margins, wider market with automated storage expert Muratec

Meanwhile, Prestar’s steel rack manufacturing business, which contributed 18% of the group’s top line, recently partnered with Muratec for the AS/RS system, where Muratec will supply the machinery and the systems, while it exclusively sources the steel racks from Prestar.

Tapping into Muratec’s market, Prestar can supply customised racks — as high as 25 metres — for big-throughput and fast-growing segments like electrical and electronics, e-commerce, pharmaceuticals, chemicals and cold-room storage.

It is also a means to protect margins which have been squeezed, despite exposure to both midstream and downstream steel manufacturing.

For the financial year ended Dec 31, 2019 (FY19), Prestar’s gross profit margin stood at 6.8%, from 9.8% in FY18 and 14.47% in FY17. It recovered to 9% in the latest quarter ended March.

Meanwhile, dividend yield also stood at a dismal 2.3%. FY19 net profit fell 56% to RM5.53 million from RM12.61 million a year aerlier, while revenue slid 10% to RM454.17 million.

Still, at its latest share price close of 46.5 sen, the group has a price-to-earnings ratio of 8.28 times, which is lower than the steel fabrication and pipes industry average of 12.89 times.

The group’s balance sheet is relatively stable. While higher short-term debt of RM145 million is against cash of RM22 million, the bulk of debt is from trade facilities, which is used to acquire materials with cash as part of the nature of the business.

Toh said the group only deals with clients with a good track record to ensure smooth payment collection. “I believe in account receivable collectible, and cashflow,” he said. “The bank allows us a cap of 1.5 times [net gearing], and we are at 0.6 times.”

As Covid-19 interrupts business for the rest of 2020, the two segments Prestar is exploring are afloat. The guardrail business can benefit from the government push for infrastructure projects to support the economy, while the e-commerce boom demands more deployment of AS/RS systems everywhere.

“The fact that 80% of Prestar’s own rack systems are sold overseas proves our competitiveness and we can now penetrate developed markets like the US, Europe and Asia.

“I think there are opportunities in downstream manufacturing, as costs in China are rising, and the US-China trade war is a long-standing issue,” said Toh.

“We should use this window of opportunity… and go along with the market to keep our revenue consistent,” Toh said. “We have that stability with our core businesses, and now, we have identified our direction [towards value-added manufacturing].”