MARC Ratings has affirmed its AAAIS(fg) rating on Malaysia Steel Works (KL) Bhd’s (Masteel) RM130.0 million Danajamin Nasional Berhad-guaranteed Sukuk Ijarah Programme with a stable outlook.
The affirmed rating and outlook are based on MARC Ratings’ assessment of credit strength of Danajamin (AAA/Stable) which has provided an unconditional and irrevocable financial guarantee insurance on the programme. Upon the completion of the amalgamation exercise of Danajamin and Bank Pembangunan Malaysia Berhad (BPMB), BPMB will honour Danajamin’s obligations under the guarantees. Accordingly, Masteel’s guaranteed sukuk will then carry BPMB’s AAA/Stable rating.
Masteel’s credit profile incorporates its longstanding track record in the domestic production of steel billets and steel bars, its moderate domestic market position and the improving operational efficiency from continued investment in production technology. The group is exposed to the volatility of steel price and raw material cost.
Group financial performance improved, attributable to the higher steel bar price; for 1H2022, revenue grew by 12.8% y-o-y to RM894.5 million as the average selling price of domestic steel bars rose to RM3,020/MT from RM2,600/MT in 1H2021. This was contributed by normalisation of economic activities following the easing of pandemic-induced restrictions. Steel bar sales remained the major revenue component, accounting for about 78%. Operating profit margin was lower y-o-y at 3.4% for 1H2022 (1H2021: 4.8%) on the surge in raw material prices during the period.
The outstanding under the Sukuk Ijarah Programme stood at RM90.0 million as at end-June 2022, with the next repayment of RM40.0 million due on November 30, 2022. The group has cash balance of RM62.1 million as at end-June 2022. Group borrowings rose to RM452.5 million as at end-June 2022 (end-2021: RM380.9 million), mainly to fund the working capital for steel production. Gross debt-to-equity ratio stood at 0.53x.