My reasons for believing Mr Ooi Teck Bee’s target price for Hiap Teck is easily achievable are as follows:
In Malaysia steel rebars is much cheaper than in China.
Construction reinforcement steel bars are much cheaper in Malaysia than in China as shown on the 2 comparison photos. The average price in Malaysia is about US$ 450 and the average price in China is about US$ 750 per ton.
Malaysian steel rebar prices
China steel rebar prices
In Malaysia electricity is much cheaper than in China.
The main reasons why the steel price in China is more expensive than in Malaysia is because electricity prices in China are higher than in Malaysia as shown on the 2 comparisons above. In China 1 kwh costs US$ 0.099 = 41 sen and in Malaysia 1 kwh costs only 25 sen.
China electricity prices
Malaysia electricity prices
The steel price chart above shows that even though steel reinforce steel bars has dropped in recently in China, it has gone up from 3,500 to 5,054 RMN per ton, an increase of 44% in the last 12 months.
Hiap Teck owns 35% of Eastern Steel Sdn Bhd and 65% is own by Beijing Jianlong. Who is Jainlong?
Beijing Jianlong Heavy Industry Group Co., Ltd (hereinafter called as Jianlong Group), established in 1999, is a large enterprise group mainly engaging resource exploitation, iron and steel production, shipping, shipbuilding and electrical machinery. In 2009, the holding enterprises of the group owned total assets of RMB 37.511 billion yuan, and reached the sales income of RMB38.189 billion yuan, the tax 2.277 billion yuan, the profits 1.818 billion yuan. Now, Jianlong Group is ranked the 74th among Chinese manufacturing enterprises, the 103th among top 200 efficiency of Chinese enterprises, the 153th among top 500 Chinese enterprises.
Eastern Steel Sdn Bhd manufactures steel slabs for the steel re-rolling industries. Its manufacturing complex occupies 1200 acres of land and located at Teluk Kalung, Kemaman, Terengganu. The plant comprises of:-
* Raw Material Yard
* Ironmaking Plant:
* Sinter Plant
* Blast Furnace Plant
* Pig Iron Caster
* Steelmaking Plant:
* Converter with Ladle Refining Furnace
* Slab Continuous Casting Machine
* Oxygen Plant
* Billet Caster Plant
* 55MV Power Plant
Its current production capacity is 700,000 metric tons per annum and aims to achieve an annual production of 3 million metric tons in the near future.
China Construction Industry Set to Grow by 12.4% to Reach US$ 1,355,314 million in 2021.
While the coronavirus outbreak severely impacted the Chinese construction industry in the first quarter of 2020, the resumption of construction activities picked up pace in the second quarter. After China emerged from the pandemic in March, the government of China introduced a program including a series of fiscal stimulus for constructing roads, bridges, broadband, utilities, and railroads across the country. Consequently, the prices of metals including nickel, copper, iron ore, zinc, and others that are used to build infrastructure increased.
While the construction output recorded a lower than previously predicted growth in 2020, it is forecast to rebound sharply in 2021. Moreover, China is on its way to becoming the largest single construction industry over the next decade.
Increase Containers production requiring more steel.
China claims it has taken significant steps to ease the impact of tight container shipping capacity by boosting the availability of empty boxes and raising production of new units.
The Ministry of Transport (MoT) has also asked the major liner operators to add more calls to Chinese ports to increase capacity on export routes. The MOT said in May, the average proportion of empty containers in ports was down to 1.3%, while container manufacturers had raised production to 500,000 teu a month.
Since the 1990s, China has been the largest container producing country, with the three largest manufacturers, which have a combined market share of 82%. Last week, vice-minister of transport Zhao Chongjiu (pictured below) said: “China has become an important shipping nation and is embarking steadily on a new phase towards building its transport infrastructure.
“As China’s economy recovers from the Covid-19 pandemic, so too is international container trade, but the pandemic has disrupted port operations, resulting in the build-up and slow return of empty containers.”
Malaysia has no more MCO
Eastern Steel Sdn Bhd’s current production capacity is 700,000 metric tons per annum and aims to achieve an annual production of 3 million metric tons in the near future.
In fact, most likely Eastern Steel Sdn Bhd will export Steel to China where steel prices are much higher than in Malaysia to make more profit.
During the last quarter ending September, Hiap Teck’s Kelang factory was shut down for 2 months and its associate Eastern Steel Sdn Bhd was shut down for 1 month. Since Malaysia has no more MCO, Hiap Teck will have fantastic profit growth prospect. As a result, Mr Ooi Teck Bee’s target price of Rm 1.16 for Hiap Teck is easily achievable.