Mon, Dec 31, 2018 - Page 15 News List

Vietnam bottleneck drags Tung Ho Steel earnings

By Chen Cheng-hui  /  Staff reporter

Due to weaker-than-expected sales of rebar and steel billets from its Vietnamese plant this year, Tung Ho Steel Enterprise Corp (東和鋼鐵) should continue to face short-term headwinds through next quarter amid intensifying price competition from Russian and Southeast Asian rivals, analysts said.

The firm’s Vietnamese unit, Tung Ho Steel Vietnam Corp (THSVC), is unlikely to see substantial improvement in profits until the effects of an operational hiccup at the plant wane and market sentiment turns more bullish there, SinoPac Securities Investment Service Co (永豐投顧) said in a report on Dec. 21.

“Tung Ho’s new rebar production lines at its Taoyuan plant performed very well this year, but its plant in Vietnam is unlikely to see sales increase markedly in the near term,” SinoPac Securities analyst Yili Chen (陳宜里) said.

Tung Ho is an integrated electric furnace steel manufacturer with a product mix of rebar, H-beams, billets, steel structures and plates. Established in 1962 in Taipei, the company also has plants in Kaohsiung and Miaoli County.

Earlier this year, several of its production lines in Vietnam were halted for more than two months due to a malfunctioning electric arc furnace adaptor. Coupled with falling billet prices in Vietnam in the third quarter and the weakening Vietnamese dong, THSVC reported a pretax loss of NT$187 million (US$6.08 million) in the first three quarters, compared with a net profit of NT$130 million in the same period last year.

Jih Sun Securities Investment Consulting Co (日盛投顧) said Tung Ho’s business should bottom out in the first quarter of next year and see a gradual recovery in the second quarter.

“The Vietnam unit might see improved operations during the second quarter next year after a new furnace adaptor is installed and production is ramped up,” Jih Sun analyst Mandy Lin (林秋香) said in a separate report on Dec. 21.

At an investors’ conference on Dec. 19, Tung Ho chairman Henry Ho (侯傑騰) said that the company plans to install a new adaptor at the Vietnam plant in June, which would raise production efficiency and boost its annual billet capacity to 1 million tonnes, the Central News Agency reported.

The plant — which has an annual capacity of 400,000 tonnes of billets and 600,000 tonnes of section steel, rebar and wire rods — contributed 11 percent of Tung Ho’s total sales in the first three quarters, while its Taoyuan plant contributed 34 percent, its Miaoli plant 23 percent and its Kaohsiung plant 13 percent of sales, a presentation document posted on the company’s Web site showed.

Tung Ho’s net profit in the first three quarters declined 33 percent year-on-year to NT$789.51 million, with earnings per share of NT$0.79, while gross margin declined from 11.94 percent to 8.42 percent, company data showed.

SinoPac forecast that the company's sales this quarter would increase 1.3 percent year-on-year to NT$9.3 billion and cut its net profit estimate for the quarter from NT$590 million to NT$204 million, with earnings per share of NT$0.2.

Jih Sun was more pessimistic, predicting that Tung Ho's sales would drop 1.51 percent to NT$9.08 billion this quarter and net profit would decrease by 73 percent to NT$148 million, making for earnings per share of NT$0.15.

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