Southern Steel's 3Q net profit falls 47% y-o-y amid lower steel prices, warns steel price to remain uncertain

KUALA LUMPUR (May 17): Southern Steel Bhd’s net profit for the third quarter ended March 31, 2023 (3QFY2023) fell 47.12% to RM1.66 million from RM3.14 million a year ago, dragged by lower selling prices. Earnings per share dropped to 0.28 sen, from 0.53 sen per share a year ago.

Quarterly revenue, however, increased by 10.31% to RM652.06 million, from RM591.12 million a year before, supported by higher sales volume, the steel company’s bourse filing showed.

The group did not declare any dividend for the quarter under review.

On a cumulative nine-month period of FY2023 (9MFY2023) basis, Southern Steel recorded a net loss of RM123.51 million compared to a net profit of RM69.48 million a year ago, due to depressed selling prices and high input costs.

This is despite its revenue increasing 4.33% to RM1.8 billion from RM1.73 billion during the corresponding nine-month period in 2022.

Southern Steel warned that the demand for steel and selling prices are expected to remain uncertain in the months ahead, citing that the projected recovery in China after the reopening from the zero-Covid policy at the end of last year did not appear to be as strong as previously anticipated.

On the local front, the demand for steel also will remain muted in the absence of large infrastructure projects, it added.

Southern Steel's unit obtains recognition orders in France and Luxembourg to receive compensation from Italian plant maker over the hot rolled coil plant contract termination

Meanwhile, for the ongoing lawsuit between Southern Steel and Italian plant maker Danieli & C Officine Meccaniche arising from the termination of building a factory plant that produces hot rolled coil, Southern Steel said its wholly-owned unit Southern HRC Sdn Bhd (SHRC) had obtained a recognition order of the first award in France and Luxembourg on Jan 30 and March 15 this year, respectively.

“After obtaining the recognition order in France, the court bailiff was instructed to enforce it, leading to the seizure and attachment of receivable debts owed by certain clients of Danieli in France.

“In Luxembourg, the court bailiff enforced the recognition order by seizing the shares of two of Danieli’s wholly-owned units, which are now frozen,” it noted.

Southern Steel said Danieli presently has filed an appeal against the enforcement order obtained in Luxembourg and France, but no hearing dates have been fixed yet for the appeals.

Meanwhile, SHRC will continue to pursue enforcement of the first award, it added.

The first award was referring to the Singaporean Tribunal decision in 2019, which ruled in favour of SHRC following the arbitration commenced by both parties in July 2016.

Under the first award, the Singapore Tribunal ordered for the contract and services agreement to be rescinded. It also ordered Danieli to repay SHRC the contract price minus the plant’s devaluation, as well as RM176.25 million in damages.

Danieli shall pay SHRC the sum of EUR4.42 million (RM21.61 million) as its legal costs and the sum of US$667,500 (RM3 million) as the costs of the arbitration proceedings.

In return, SHRC would transfer the plant, together with the additional equipment installed thereon, to Danieli.

To recap, in July 2016, SHRC terminated the service of Danieli for the design, manufacture and supply of a thin slab casting unit that produces hot rolled coil, claiming the latter had failed to fulfil its contractual obligations, pushing the parties into arbitration.

The original agreement was inked in June 2011 with the amount involved in the contract at approximately RM427 million.

Shares in Southern Steel closed up two sen or 4.17% at 50 sen, giving the group a market capitalisation of RM298 million.