Mycron ... Feb11

Mycron Steel Bhd, a cold rolled coiled (CRC) steel sheet maker, plans to spend up to RM200 million to double its production capacity to 500,000 tonnes a year from 260,000 tonnes now as part of its strategy to tap into the import-substitution market, says its CEO.

Mycron Steel, a Melewar group subsidiary, plans to build the new mill on the five acres of land beside its existing factory and is now talking to six companies on a bid to supply the machinery for the new CRC mill.

Malaysia is a substantial importer of CRC, with 2009 showing CRC-related product imports amounting to 1.43 million tonnes compared with 1.62 million tonnes a year earlier. With such a large amount of imported CRC, the opportunity for Mycron to tap into the import-substitution market is huge, he said.

They are in deep discussion with Perusahaan Otomobil Kedua Sdn Bhd (Perodua) to supply CRC. Should all go well, it will be supplying CRC to Perodua for the Myvi replacement model, scheduled to be launched in 2011. Perodua’s CRC is mainly imported. Mycron currently supplies up to 12,000 tonnes of CRC annually to Proton Holdings Bhd.

Apart from the automotive sector, Mycron also supplies CRC to the steel-galvanising and colour-coating sector, in particular to BluScope Steel (M) Sdn Bhd.

Mycron is trying to tap into the import-substitution market, betting that domestic CRC users will begin to seek more local CRC rather than import from abroad.

Under the government’s current iron and steel policy, announced on June 17, 2009, import duties on flat steel products, including CRC, have been reduced to 25% from 50%. The policy also no longer grants import-duty exemption for flat products that can be supplied by local makers such as Mycron, except to companies operating in free trade zones and licensed manufacturing warehouses.

In order to avoid paying the 25% import duty, CRC users have to buy from local manufacturers. Still, not all CRC users have turned to local sources as evidenced by the substantial amount of CRC still being imported into the country. The reason for this is because the quality of local CRC in general does not match preferred standards.

Mycron’s new mill is expected to enhance its product quality besides expanding production capacity in order to capture a bigger slice of the import-substitution market.

For 1QFY11 ended Sept 30, 2010, Mycron’s revenue totalled RM105.98 million, up 24.7% from the previous corresponding period while net profit totalled RM4.23 million, a reversal of the net loss of RM2.86 million previously.

Unlike most steel players, Mycron’s net gearing is considered relatively modest at 64.6%. As a result, it also pays good dividends, with a dividend yield of about 5.38% based on its prevailing share price.

As at Sept 30, 2010, the company had RM50.3 million in long-term borrowings, RM132.19 million in short-term borrowings and RM12.05 million in cash. That translates into a net debt of RM170.44 million against shareholders’ equity of RM263.65 million.