KUALA LUMPUR (July 29): Prestar Resources Bhd is doing well as it maintains a relatively low profile as the steel industry loses its luster due to low margins and slowing demand.
       This year, a well-established steel products and guardrail equipment business entered the growing market of East Malaysia.
       Prestar is also looking to the future by positioning itself with industry leader Murata Machinery, Ltd (Japan) (Muratec) to provide complementary solutions for automated storage and retrieval systems (AS/RS).
       Earlier this month, Prestar announced that it had won an order worth RM80 million for the supply of road barriers for the 1,076 km Sarawak section of the Pan-Borneo Highway.
       This provides a presence for the group’s future prospects in Borneo, and the Sabah section of the 786 km highway will also be available in the next few years.
       Prestar Group Managing Director Datuk Toh Yu Peng (photo) said there was also the prospect of connecting coastal roads, while Indonesia’s plan to move its capital from Jakarta to the city of Samarinda in Kalimantan could ensure long-term continuity.
       He said that the group’s experience in West Malaysia and Indonesia would enable it to take advantage of the opportunities there.
       “In general, the outlook for East Malaysia could last another five to ten years,” he added.
       In Peninsular Malaysia, Prestar is eyeing the Central Spine Highway section as well as Klang Valley Highway projects such as DASH, SUKE and the Setiawangsa-Pantai Expressway (formerly known as DUKE-3) in the coming years.
       When asked for the amount of the tender, To explained that an average supply of RM150,000 is required per kilometer of expressway.
        “In Sarawak, we received five packages out of 10,” he said as an example. Prestar is one of three approved suppliers in Sarawak, Pan Borneo. To insists that Prestar controls 50 percent of the market in the peninsula.
        Outside of Malaysia, Prestar supplies fencing to Cambodia, Sri Lanka, Indonesia and Papua New Guinea, Brunei. However, Malaysia remains the main source of 90% of the fence segment revenue.
        There is also a constant need for road repairs due to accidents and road widening work, Toch said. The group has been supplying products to service the North-South Expressway for eight years, generating more than RM6 million annually.
       At present, the fence business accounts for about 15% of the group’s annual turnover of around RM400 million, while steel pipe production is still Prestar’s main business, accounting for about half of the revenue.
       Meanwhile, Prestar, whose steel frame business accounts for 18% of the group’s revenue, recently partnered with Muratec to develop the AS/RS system, and Muratec will supply the equipment and systems, while purchasing steel frames exclusively from Prestar.
       Using the Muratec marketplace, Prestar can supply customized shelving – up to 25 meters – for high-end and fast-growing sectors such as electrical and electronics, e-commerce, pharmaceuticals, chemicals and cold stores.
       It is also a means of protecting squeezed margins despite being involved in steel production in the middle and downstream process chain.
        For the fiscal year ended December 31, 2019 (FY19), Prestar’s gross margin was 6.8% compared to 9.8% in FY18 and 14.47% in FY17. In the last quarter ending in March, it recovered to 9%.
        Meanwhile, the dividend yield is also at a modest 2.3%. Net profit for fiscal year 2019 fell 56% to RM5.53 million from RM12.61 million a year earlier, while revenue fell 10% to RM454.17 million.
       However, the group’s latest closing price was 46.5 sen and the price-to-earnings ratio was 8.28 times, lower than the steel and pipeline industry average of 12.89 times.
        The balance of the group is relatively stable. While the higher short-term debt was RM145 million compared to RM22 million in cash, the bulk of the debt was related to a trading facility that was used to purchase materials in cash as part of the nature of the business.
        Toh said the group only works with reputable clients to ensure that payments are collected seamlessly. “I believe in accounts receivable and cash flow,” he said. “The banks allowed us to limit ourselves to 1.5x [net debt capital], and we to 0.6x.”
        With Covid-19 devastating the business before the end of 2020, the two segments that Prestar is investigating continue to operate. The fencing business can benefit from the government’s push for infrastructure projects to support the economy, while the e-commerce boom requires more AS/RS systems to be deployed everywhere.
       “The fact that 80% of Prestar’s own shelving systems are sold overseas is a testament to our competitiveness and we can now expand into established markets such as the US, Europe and Asia.
       “I think there are opportunities in downstream because costs are rising in China and the trade war between the US and China is a longstanding issue,” Toh said.
        “We need to take advantage of this window of opportunity … and work with the market to keep our revenues stable,” Toh said. “We have stability in our core business and we have now set our direction [toward value-added manufacturing].”
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