KUALA LUMPUR (Sept 28): Steelmaker Hiap Teck Venture Bhd's net profit for the fourth quarter ended July 31, 2020 (4QFY20) fell 65% year-on-year (y-o-y) to RM10.3 million from RM29.56 million, while revenue dipped 32% to RM210 million. The fall in performance was due to lower sales volume attributable to the Movement Control Order (MCO) implemented in March.

For the full financial year ended July 31, 2020 (FY20), its net profit tumbled 83.06% to RM4.29 million — its lowest in three years — versus RM25.30 million in FY19. Prior to FY19, it returned to the black in FY18, registering a net profit of RM27.2 million compared with a net loss of RM103.2 million in FY17.

Hiap Teck's FY20 annual revenue fell 21% y-o-y to RM932.87 million from RM1.19 billion. This is the first time in 15 years that the group's annual revenue drops below the RM1 billion mark. It reported an annual revenue of RM756 million in FY05.

All of Hiap Teck's business activities, namely manufacturing, trading and transportation segments, shut down on March 18, 2020 after the imposition of the MCO, and resumed operations on May 4 by observing stringent standard operating procedures (SOPs) under the Conditional Movement Control Order (CMCO). In a filing with Bursa Malaysia today, Hiap Teck revealed that during the MCO period, the group registered a sales volume of close to nil.

Nevertheless, comparing Hiap Teck's 4QFY20 earnings with the immediate preceding quarter of 3QFY20, the group's net profit more than doubled to RM10.29 million from RM4.92 million. This was due to higher sales, as the group resumed operations on May 4, followed by the implementation of the CMCO.

The group also attributed the improved earnings in 4QFY20 to a higher share of profit from its joint venture (JV) entity as the JV entity included an impairment write-back of RM50 million for FY20 to reflect the continued improvements of its operations.

As a result, earnings per share were higher at 0.76 sen for 4QFY20 against 0.37 sen for 3QFY20.

Revenue for the quarter came in at RM210.22 million, up 27.72% quarter-on-quarter from RM164.59 million.

Despite the partial reopening of the economy on May 4, Hiap Teck noted that most construction sites faced challenges restarting due to adjustments required to comply with the strict Covid-19 SOPs.

"Most of the construction sites were reported to remain idle as developers faced challenges to restart, including financial constraints, deteriorated balance sheets, initial lack of clarity over the SOPs and Covid-19 testing, and disruptions in the supply of construction materials. Social-distancing measures seemed to be more challenging to put in place, hindering post-lockdown resumption of work," it added.

It is forecast that the apparent steel consumption in Malaysia will register a decline of -8.1% to 8.7 million metric tonnes (MT) in 2020 from 9.47 million MT in 2019.

Notwithstanding that, the group said the recovery of steel demand will be more visible in the second half of 2020, supported by stimulus measures, policy rate cuts and continued progress in public projects.

The revival of the construction activities, especially infrastructure investment, as the government has put forward several new infrastructure initiatives and the continuation of large-scale infrastructure projects such as East Coast Rail Link and Bandar Malaysia projects by the government will provide lift to growth for the steel industry moving forward, it added.

It said the group's strategy is to remain focused and contain costs to ensure sustainable profit and growth while observing the stringent Covid-19 SOPs imposed by the Ministry of Health.

"We are confident that our strong balance sheet and cash flow position will weather us through these difficult conditions, and to be able to take advantage of any opportunities that may arise when the economy recovers," it added.

Hiap Teck's shares price closed unchanged at 18 sen and its market capitalisation stood at RM246.56 million. Some 13.73 million shares were traded. The counter has rebounded 80% from its March low of 10 sen.