Millennium Steel Plc (MS)
reported 6-month (Jul 12, – 31 Dec 31, 02) results
yesterday with a net loss of Bt117mn (EPS negative Bt0.02
including preferred shares). This was the first stage after
a merger between N.T.S. Steel Group (NTS), Siam Iron and
Steel (SISCO2001) and Siam Construction Steel Company
(SCSC). NTS's plant did not start production in this period.
Sales in the 6-month period
was only Bt508mn, compared with the estimate used in the
company's year one projection of Bt7,168mn. NTS's plant is
now scheduled to start production in the second quarter of
this year after spending around $10mn for maintenance and
repair of old machines.
Data from the BOT shows
demand for long steel bars last year increased 20% to around
2.3 million metric tonnes. However, the country's total
capacity is 6.4 million metric tonnes.
MS incurred interest expenses
of only Bt69mn in the six-month period. After the financial
restructuring and merger, the company's debt remains high,
however, at Bt11,462mn with a debt-to-equity ratio of 1.49x.
Due to additional capex on production upgrades and operating
losses, the company's gearing ratio is expected to increase
to 1.72x by the end of this year.
After the merger, MS’s
management expects the new company will increase sales to
Bt7,168mn, with gross margins similar to those posted by
SCSC and SISCO2001. Despite lower selling and administrative
expenses from improved economies of scale, MS is still
expected to suffer a net loss of Bt1,329mn this year, while
EBITDA should be a positive Bt571mn.
In our view, the current
share price of Bt1.3 is rather expensive in view of the
company's book value of Bt1.23, high 2003 EV/EBITDA of 32x
as well as high debt-to-equity ratio of 1.72x. In
comparison, Sahaviriya Steel (SSI) has shown a dramatic
turnaround in earnings and is trading on a much more
attractive P/BV 0.82x and EV/EBITDA 4x. Until MS shows
clearer signs of earnings recovery, we are maintaining our
recommendation of "AVOID".
MS's
Financial Status and Earning performance
| |
Jul-Dec02 |
Year1
Projection |
|
Sales |
508 |
7,168 |
|
COGs |
370 |
6,357 |
|
Depreciation&Amortization |
65 |
1,067 |
|
Gross margin (%) |
14% |
(4%) |
|
SG&A |
103 |
239 |
|
Operating margin (%) |
7% |
8% |
|
EBITDA |
41 |
572 |
|
EBITDA margin (%) |
8% |
8% |
|
Interest expense |
69 |
831 |
|
Net profit before
extra item |
(122) |
(1,326) |
|
Extra ordinary gain
(loss) |
5 |
- |
|
Net profit (loss) |
(117) |
(1,326) |
|
Net profit margin (%) |
(23%) |
(18%) |
|
EPS (Bt) before extra
item * |
(0.02) |
(0.24) |
|
EPS (Bt) * |
(0.02) |
(0.24) |
|
Total Asset |
19,727 |
19,427 |
|
Loans |
11,462 |
11,494 |
|
Shareholder’s
Equity |
7,689 |
6,672 |
|
Number of Shares (mn
shr) |
5,445 |
5,445 |
|
Book Value per share
(Bt) |
1.41 |
1.23 |
|
Loan / Equity |
1.49 |
1.72 |
|
EV/EBITDA |
450.25 |
32.24 |
|
P/BV |
0.92 |
1.06 |
Source : MS / *Fully Diluted
