All Masteel shareholders are making money on paper because the share price shot up due to the 1 for 3 bonus share issue.
As much as I hate to pour cold water to spoil the enthusiasm and jubilation, I must tell you what I know about the property development business and how it is affecting Masteel and other steel products manufacturers.
Masteel manufactures mild and high tensile steel rods for the concrete construction and property development business.
Following a Bank Negara Malaysia (BNM) report warning that unsold residential properties are at a decade-high level, the government has frozen luxury property developments from Nov 1, The New Straits Times reported.
The report quoted Second Finance Minister Johari Abdul Ghani as saying the cabinet decided this after scrutinising the BNM report on the real estate glut.
“The Bank Negara report takes into account high-rise condominiums, shopping malls and commercial units, including those that are valued at more than RM1 million,” he said.
He said the directive temporarily stops development of shopping malls, commercial complexes and condominiums valued above RM1 million until the excess supply is cleared.
If all Masteel shareholders open their eyes, they can see there an oversupply of properties in every town and city in Malaysia.
If property developers cannot sell their development, they would not buy steel rods from Masteel which will definitely affect the company’s profit. But why is Masteel showing good profit?
Masteel’s current good result is due to the late payment by developers and contractors. They could not pay within the 30 days credit limit.
Conclusion: All investors must not only look at the financial and technical analysis, but they must also look at the company’s business. Due to the oversupply of unsold properties, Masteel’s business will be badly affected and its future profit will be reduced which will definitely push down its share price.
Masteel has no profit growth prospect which is the most important share selection criterion.