Posted Date: September 23, 2021
MARC has affirmed its AAAIS(fg) rating on Malaysia Steel Works (KL) Bhd’s (Masteel) RM130.0 million Sukuk Ijarah Programme with a stable outlook.
Masteel’s standalone credit profile shows some improvement on the back of higher steel bar price and increased sales volume. The average selling price of domestic steel bars rose to RM2,800/MT in 1Q2021 from RM2,050/MT in 2020 (1Q2020: RM2,000/MT). Meanwhile, the sales volume of steel bars and billets increased to 475,000 MT and 150,000 MT (2019: 460,000 MT; 25,000 MT). As a result, revenue rose by 10.6% y-o-y to RM439.7 million in 1Q2021 of which steel bar sales remained the major component, accounting for about 70%. Operating profit improved sharply to RM18.5 million in 1Q2021 (1Q2020:RM3.1 million).
The outstanding under the Sukuk Ijarah Programme is RM120.0 million, with the next repayment of RM30.0 million due in November 2021. We note with some concern that its liquidity position remains weak with cash of RM38.3 million against short-term borrowings of RM323.4 million, comprising mostly bills payable for the purchase of raw materials. Over the near term, a sustained higher steel bar price and better production efficiency are expected to improve the group’s financial metrics. Nonetheless, we continue to view Masteel’s standalone profile as being highly susceptible to raw material price volatility and supply-demand dynamics in the steel industry.
Noteholders are, however, insulated from downside risks in relation to Masteel’s credit profile by the guarantee provided by Danajamin. Any changes in the supported rating or outlook will be driven by our assessment of Danajamin’s rating.
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