- Renowned specialist in galvanized steel. Lysaght Galvanised Steel Bhd (LYSA), is a mid-sized manufacturer of galvanized steel poles, telecommunication masts and towers. The Group utilises leading technology to manufacture reliable and high quality products that meet international standards to cater for a wide range of environment and specification needs. The products produced by LYSA have longer life expectancy and require only minimal maintenance, backed by five-year warranty that the Group provides for each product.

- Consistent margin track record over the past five years. Over the past five years, LYSA has consistently achieved a gross margin of above 30% as well as a net margin level that higher than 13%. The consistent margins indicated that the company has strong bargaining power to withstand the challenging years.

- Bracing for a challenging FY14. LYSA’s revenue is expected to normalise in FY14 after an exceptional good performance in FY13 that was underpinned by the completion of subcontracted works from Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd (SPYTL) and the KLIA 2 project. Meanwhile, in view of the group’s products are only installed towards the tail end of each project coupled with the lack of mega property and infrastructure projects currently, LYSA is expected to face a challenging time in FY14. On the bright side, by implementing a stringent cost plus strategy, the group is confident to sail through the current challenging period and maintain its margins despite volatile raw materials’ prices (i.e. steel, zinc and diesel).

- Sizeable warchest to prepare for special projects, if any. Despite sizeable retained earnings of RM70.4m (vs. market cap of RM126.8m) at end-FY13, LYSA has no immediate plans for the fund. In fact, the group would prefer to adopt a prudent stance and reserve the fund to prepare for any potential special projects that could be rise in the near-term that generally require high upfront investment in raw material and production costs, based on the group historical experience. With the Group’s healthy balance sheet, we believe they would be able to sustain on any unfavourable situation moving forward.

- An informal 50% dividend payout policy. LYSA has been consistently rewarding its shareholders by declaring an annual DPS of 5-12 sen (or an average 3%-6% dividend yield) since FY09. While the group does not have an official dividend policy in place, we understand that LYSA intends to declare a minimum 50% of net profit as dividend going forward.

- Non-rated with a fair value of RM3.14. LYSA is currently trading at a forward PER of 12.8x, which is higher than the forward FBMSMALL cap PER of 11.4x. While the group’s valuation appears rich at current level, its consistent margin track record and strong dividend payout would allow LYSA to withstand the challenging year. We fairly value LYSA at RM3.14 (which is the current price) and will relook the stock when the group’s valuation falls to more attractive level. 

Source: Kenanga