Financial Highlights

The following table sets out a summary of the consolidated statements of profit or loss and other comprehensive income for the Financial Years and Period Under Review which has been extracted from the Accountants’ Report.

• The revenue is RM 344 mil for FYE2019, RM 354 mil for FYE2020, and RM 373 mil for FYE2021. This shows the company is having difficulty to continue expanding its market share.
• The gross profit margin increased from 6.2% (FYE2019) to 21.4% (FYE2021) due to the increase in ASP per MT for all segments as a result of a global supply chain disruption as there were stricter regulations of steel production, removal of export rebates in China, and increase in energy prices, as well as the re-opening of the economy after the national lockdown policies were lifted in FYE 2021 and also the company purchased materials at lower prices, before the increase in prices of material in 2021. (Generally, a GP margin of 20% is considered high/ good).
• PAT margin increased from - 0.5% (FYE 2019) to 12.1% (FYE 2021).
• The gearing ratio is 1.1 (FYE 2021) which is under an unhealthy range. (A good gearing ratio should be between 0.25 – 0.5).

Major customer and Supplier

Major Customers

The top 5 major customers for the Financial Year 2021 are as follows:

According to the details, the top 5 customers are around 23.70%. This shows that the company’s customer base is very healthy as the company has diverse customers to avoid high customer concentration risk.

Major Suppliers

The top 5 major suppliers for the Financial Year 2021 are as follows:

According to the details, the top 5 suppliers are around 75%. The company mentioned they are not dependent on these suppliers as they can procure supplies from alternative suppliers, however, the company is still able to face an unexpected cost when they decide to switch suppliers.

Industry Overview

According to the Providence Strategic Partners Report, the overall steel industry encompasses the upstream, midstream, and downstream steel industry segments.

Overall, the steel industry in Malaysia has been growing, in terms of manufacturing sales value, from RM22.6 billion in 2018 to RM26.5 billion in 2021, registering a compound annual growth rate (“CAGR”) of 5.4% over the period.1 PROVIDENCE forecasts that the steel industry in Malaysia will grow at a CAGR of 5.6% between 2022 and 2024, from RM28.0 billion in 2022 to approximately RM31.2 billion in 2024.

The steel industry, in terms of production and consumption volume, is typically cyclical as it fluctuates based on various factors including

1. growth of end-user industries which could affect supply and demand for steel products. This could be influenced by the economic conditions in both global and local markets;
2. global steel prices which could influence the volume of steel procured in the year;
3. demand for specific steel products. There are various types of steel sheets, coils, and pipes, all of which have different weightage. An increase in demand for lighter steel products would lead to a fall in the production and consumption volume of steel products; and
4. supply conditions affecting the supply chain of the steel industry.

In general, the apparent consumption volume of steel products in Malaysia has been declining from 9.8 million metric tonnes (“MT”) in 2018 to 9.2 million MT in 2019, and 6.8 million MT in 2020. Nevertheless, the apparent consumption volume of steel products in Malaysia is estimated to increase to 9.2 million MT in 2021 in line with the significant rise in global steel prices

Source: IMR Report by PROVIDENCE

Business strategies and prospects for LEFORM BERHAD

The future plans and strategies are summarized as follows:

1. The company intends to relocate its headquarters and workers’ accommodation and expand the warehouse storage facility.
2. The company intends to expand the range of steel pipes to include thicker gauge steel pipes.

MQ Trader View

Opportunities

1. The company has a wide range of steel products that can cater to various end-user industry applications. The company offers the customers, comprising building material and steel trading companies, manufacturers, and contractors, a wide and complementary range of steel products that are suitable for use in various end-user industry applications including the furniture, construction, and industrial product manufacturing industries.

Risk

1. The Group's materials comprise mother coils which mainly consist of The Group's materials comprise mother coils which mainly consist of cold-rolled steel coils, hot-rolled steel coils, and galvanized steel coils. These materials are the largest component in the Group’s cost of sales, comprising between 90.1% and 93.1% of the Group’s total cost of sales during Financial Years
2. The company is subject to foreign exchange fluctuations which may impact the costs of the materials. The company sources cold-rolled steel coils, hot-rolled steel coils, and galvanized steel coils from both local suppliers and foreign suppliers based in Singapore, Taiwan, and Indonesia. The purchases of such materials are denominated in RM and USD. Thus, any significant fluctuations in these foreign exchange rates may affect the Group’s financial performance. The US Dollar Index (DXY) increased many in this year which will affect the financial report on FYE 2022.

Click here to refer the IPO - Leform Berhad (Part 1)

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