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.
The affirmed rating and outlook reflect the credit strength of Danajamin Nasional Berhad (Danajamin) which has provided unconditional and irrevocable financial guarantee insurance on the programme. MARC maintains an insurer financial strength rating of AAA/stable and long-term counterparty credit rating of AAA/stable on Danajamin.
Masteel’s standalone credit profile has weakened in recent years due to the unfavourable steel price from an overcapacity in domestic steel production. The low steel price has weighed on its earnings and profitability margin. Coupled with sluggish steel consumption which has been exacerbated by the COVID-19 pandemic, the group’s financial performance would remain under pressure in the near- to medium-term. MARC notes that following the easing of measures imposed to combat the pandemic, construction activities have resumed. As the construction sector is the main offtaker of steel products, steel demand could see some improvement although full recovery of the sector remains challenging in the near term.
For 1Q2020, Masteel recorded higher revenue y-o-y to RM397.6 million but recorded losses before tax of RM4.8 million. During this period, average steel bar price stood at RM2,020/MT (2019: RM2,104/MT; 2018: RM2,471/MT). Sales of steel bars remain the major component of its revenue, accounting for about 78% of total revenue in 1Q2020. Masteel’s debt-to-equity ratio stood at 0.61x. Its liquidity position remains weak with RM50.1 million in cash and bank balances, against a short-term debt of RM308.5 million, comprising mostly bills payable which were utilised to purchase raw materials.