Mycron Steel Bhd (9 June 2025)
Mycron is a key player in the Malaysian steel industry, primarily focused on the manufacturing and sale of Cold Rolled Coils (CRC) and steel tubes. The company's business model is that of a mid-stream commodity converter, whose performance is intrinsically linked to the volatile, cyclical nature of the global steel market. A recurring and central theme of its operations is the constant struggle against intense competition from unfairly traded and dumped imports, particularly from China, Vietnam, and South Korea. Consequently, the company's financial health and strategic direction are heavily dependent on government trade policies, with its profitability often hinging on the successful implementation and extension of anti-dumping duties to ensure a level playing field in its domestic market.
(1) Historical performance
An analysis of Mycron's performance from 2009 to the present day, when correlated with its stock price movements, reveals a clear relationship. The stock has acted as a barometer for the company's tumultuous journey, rising during periods of clear, fundamental recovery and falling during times of volatility, policy-driven struggles, and questionable long-term profitability.
Periods of Stock Uptrend: Rewarding Turnarounds
The stock experienced significant uptrends in 2010, 2016, and 2021. Each rally was a direct response to a dramatic and tangible turnaround in the company's fortunes.
2010 (The Post-Crisis Rebirth): The stock's uptrend was fuelled by a massive swing from a RM38.4 million loss in FY2009 to a RM25.4 million profit in FY20101. This wasn't just a market recovery; it was the result of a strategic plant upgrade that improved product quality and allowed Mycron to penetrate the lucrative automotive sector, securing major contracts with Proton and Perodua. The market rewarded this successful execution and record-breaking performance.
2016 (The "Two-Engine" Turnaround): The stock rallied as profits more than doubled. This was driven by a powerful combination of favourable events: successful anti-dumping measures by the government levelled the playing field, and the exit of a monopolistic domestic supplier of Hot Rolled Coil (HRC) allowed Mycron to source raw materials at competitive global prices, massively boosting margins. The company's financial health saw a dramatic improvement, moving from a net current liability to a net current asset position.
2021 (The Post-Pandemic V-Shape): The stock reversed a multi-year decline following an exceptional V-shaped recovery. After a loss in 2020, the company posted a robust net profit of RM53.8 million in FY2021, driven by a post-lockdown surge in demand and prices. This recovery was underpinned by a crucial strategic victory: a successful anti-dumping sunset review that extended tariff protection for another five years, ensuring domestic market stability7.
Periods of Stock Downtrend: Reflecting Volatility and Weakness
The prolonged downtrends from 2011-2015, 2017-2020, and 2022 to the present highlight the market's negative reaction to periods of losses, policy uncertainty, and unsustainable profits.
2011-2015 (The "Ball and Chain" Years): This five-year slump was marked by extreme volatility. A 98% profit collapse in FY2011 was followed by a major loss in FY2012, a fragile recovery in FY2013, another loss in FY2014, and an operational loss in FY2015 (masked by an accounting gain). Throughout this period, the company was consistently hampered by what it termed lopsided and harmful government policies, intense import dumping, and tight cash flows, leading to the repeated withholding of dividends.
2017-2020 (The Eroding Rebound): After peaking in 2017, profits were halved in FY2018 due to a severe margin squeeze from dumped imports. The company then swung to a significant net loss in FY2019, hit by the "twin evils" of a global trade war and domestic political uncertainty. This was followed by another loss in FY2020, heavily impacted by the COVID-19 pandemic. The stock price reflected the erosion of the 2016 turnaround and the return to a familiar cycle of struggle.
2022-Present (Looking Past the Windfall): This recent downtrend demonstrates investor scepticism. While FY2022 produced a near-record net profit of RM52.7 million, the company's own report candidly described this as a "windfall profit" driven by temporarily high price spreads, not by sustainable volume growth. Management's "gloomy" outlook for FY2023 proved correct, as the company plunged to a RM12.3 million net loss. The subsequent profit in FY2024, while a positive turnaround, was heavily reliant on a high-risk pivot to thin-margin export sales, as the domestic market remained weak. The stock's decline suggests investors see a business model still vulnerable to commodity cycles and policy shifts, with no clear path to stable, long-term earnings.
In conclusion, Mycron's stock performance is intricately linked to the dramatic swings in its financial health and strategic position. The market has consistently rewarded tangible, fundamental turnarounds while punishing periods of losses, policy-driven hardship, and profits that appear unsustainable. The stock's long-term trajectory charts a narrative of a resilient but ultimately cyclical company whose fate is often dictated by external forces, a reality that investors have priced in over time.
Product Segment Analysis
1. Cold Rolled Coils (CRC)
The CRC division is Mycron's largest segment by revenue but also its most volatile, serving as the primary battlefield for the company's struggles with international competition and trade policy.
Market Position & Challenges: The domestic CRC market is characterized by severe import penetration and substantial under-utilization of local production capacity. Imports have historically accounted for a majority of CRC consumed in Malaysia, with figures reaching as high as 61% in 2023 and 70% in 2018. The division's performance is therefore critically dependent on the existence of anti-dumping duties on imports from countries like China, Vietnam, and South Korea. The removal or absence of these duties has led to immediate and severe negative impacts, including aggressive price dumping, negative margin spreads, and significant financial losses.
Performance: The CRC division's profitability has fluctuated wildly. It has achieved strong profits in years with effective trade protection and favorable market conditions, such as a PBT of RM40.62 million in FY2021 and RM37.13 million in FY2022. However, it has also suffered substantial losses, such as a RM16.5 million pre-tax loss in FY2019, when hit by the dual impact of the US-China trade war and a weak domestic market. In FY2024, the CRC segment contributed positively with a net profit of around RM8 million, aided by a legal victory that provided a 'stay' against the removal of anti-dumping duties.
Strategy & Development: The division's strategy has evolved from lobbying for trade protection to actively developing higher-value products and new markets. A key historical development was a technical agreement with JFE Steel of Japan, which enabled Mycron to produce automotive-grade CRC, successfully penetrating the automotive sector and securing contracts with vendors for national car brands like Proton and Perodua (2009). More recently, a strategic pivot to export markets was a primary driver of the Group's turnaround in FY2024, with foreign sales increasing seven-fold.
2. Steel Tubes & Pipes
The Steel Tube division is the company's downstream business, providing a degree of synergy and diversification. Its performance is often more stable than the CRC division's, though it faces its own set of challenges.
Market Position & Drivers: This segment's performance is closely tied to the health of the domestic property, construction, and infrastructure sectors. Demand can be slow when these sectors are weak but benefits from the rollout of mega-projects like the ECRL, MRT3, and LRT. A pivotal moment for this division occurred in FY2017 with the cessation of operations of a domestic HRC monopoly, Megasteel. This event was a "game-changer," allowing the division to import its primary raw material (HRC) competitively, leading to a massive 219% surge in its PBT that year.
Performance: The Steel Tube division has been a more consistent contributor to Group profits. It registered a PBT of RM30.0 million in FY2017 and RM27.1 million in FY2022. While it has also suffered from weak domestic demand, such as in FY2020 and FY2023, it has often remained profitable even when the CRC division was loss-making. In FY2024, it contributed a net profit of around RM8 million, mirroring the CRC segment's performance. The acquisition of this business (formerly Melewar Steel Tube) in FY2015 was a key strategic move to extend the Group's value chain.
3. Other Segments
Processing Services, Scraps, and Others: These smaller segments contribute to revenue but are not primary drivers of the Group's overall performance. Processing services saw significant revenue in FY2022 at RM14.4 million as part of a proactive cost-containment strategy but has since declined. Revenue from the sale of scraps is a minor but consistent by-product of the main manufacturing operations.
(2) Current trend and how to profit from
There are three major favorable trends in Malaysia that Mycron is strategically positioning itself to benefit from in the coming years: major infrastructure spending, national push towards green technology and sustainability, and export potential.
Revival of Mega Infrastructure Projects
A recurring theme in the company's outlook is the potential for increased domestic steel demand driven by the government's commitment to large-scale infrastructure projects.
FY2024 Outlook: Management identifies potential domestic demand from major projects like the MRT3, Penang LRT, and others as a key positive catalyst for FY2025.
FY2023 Outlook: In the previous year's outlook for FY2024, management had already seen potential support for steel demand coming from construction and infrastructure projects like the ECRL.
The revival and implementation of these mega-projects are expected to significantly boost demand for steel products, providing a much-needed stimulus to the weak domestic market Mycron has been facing.
Green Steel and National Sustainability Policies
Mycron is actively aligning itself with Malaysia's national industrial and environmental policies, positioning itself as a future leader in a critical niche market. This is the most significant long-term strategic development highlighted in the recent reports.
Alignment with National Policy: The company is future-proofing its operations by aligning with national policies such as the New Industrial Master Plan (NIMP 2030) and the Circular Economy (CE) Policy Framework.
Strategic "Green Steel" Initiative: The most important development is the formal establishment of strategic collaborations with Universiti Teknologi Malaysia (UTM) and JFE Steel Corporation of Japan. The explicit goal of these partnerships is to pioneer the production of low-carbon emission steel in Malaysia.
Building a Competitive Moat: This "green steel" initiative is a strategic maneuver to create a premium, differentiated product. The goal is to build a competitive moat, shifting the terms of competition away from the price of commodity steel—where they are constantly attacked by low-cost, high-carbon imports—towards value, sustainability, and quality. This positions the company to meet future demand for green products and insulate itself from the chronic issue of dumping.
Export potential
· Exceptional Recent Growth: The most significant development in FY2024 was the aggressive and successful expansion into export markets. Foreign sales increased by a "remarkable 7-fold year-on-year," fundamentally changing the company's sales mix.
· Significant Contribution to Revenue: As a result of this strategic pivot, exports grew to constitute approximately 30% of the Group's total sales in FY2024. This is a substantial jump from a historical figure of less than 10% and highlights a successful diversification away from a persistently weak domestic market.
· Strategic Market Penetration: The company demonstrated strategic agility by leveraging its membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to tap into new markets. It successfully exploited a vacuum created by trade disputes involving other nations, showcasing an ability to turn geopolitical fragmentation into a commercial opportunity. This success was built on past efforts to secure international quality certifications.
· Associated Risks and Challenges: While the export push was successful, management is clear-eyed about the associated risks. The document notes that the company had to accept "thinner margins and higher operating costs" to compete in these export markets. Management also acknowledges that "export-sales do come with higher transaction risks and thin margins". Furthermore, a potential strengthening of the Malaysian Ringgit could negatively impact export competitiveness in the future.
(3) Financial performance
Balance Sheet Quality
Mycron's balance sheet exhibits a mix of strengths and significant risks, primarily centered around its asset base and high-leverage financing model.
A key favorable trend is the company's Net-Net Current Assets (NNCA), which turned positive in FY2016 and, despite a dip in FY2020, has shown consistent growth since. This growing asset base has contributed to a relatively stable book value per share, which in recent years has returned to levels comparable to FY2011 and has seen steady improvement since FY2020. However, this stability has been periodically undermined by a recurring tendency to increase its shares outstanding. Notably, substantial increases in share count in FY2015 and FY2019 led to immediate drops in book value per share. From a valuation perspective, the current market cap to NNCA ratio stands at 0.59 times, the lowest level it has been since the NNCA turned positive in 2016.
The most prominent feature and significant risk is the company's high-leverage business model. The amount of debt issued or repaid annually is several times higher than the yearly cash generated from operations. For instance, in the last twelve months (LTM), this figure was approximately 4.5 times the cash from operations. This structure places considerable strain on the company's finances, a fact corroborated by the management's frequent complaints of "tight" cash flow and "very limited" banking facilities in their annual reports. While the debt-to-equity ratio has fluctuated, the reliance on significant trade financing and debt creates a perpetual risk, especially given the industry's volatility.
Earnings and Cash Flow Analysis
Mycron's earnings profile is defined by extreme volatility, while its cash flow is characterized by a constant tension between operational generation and financing obligations.
The company's earnings are inherently unstable, with huge fluctuations in gross and net profit margins year after year. This volatility is a core feature of the business, which has seen it swing from a strong net profit of RM52.7 million in FY2022 to a significant net loss of RM12.3 million in FY2023, only to recover again in FY2024. This erratic performance is a direct result of the cyclical steel market, intense import competition, and its dependency on government trade policies.
Despite the earnings volatility, the company has consistently generated positive cash flow from operations, which has been higher than its capital expenditures (CAPEX) since 2011, resulting in positive Free Cash Flow (FCF). However, this positive operational cash flow is overshadowed by the company's highly leveraged financing strategy. The combination of an inherently volatile business and a high-leverage model creates a "two-edged sword." The substantial amount of debt that requires refinancing or repayment each year dwarfs the FCF generated, creating a significant structural risk. While the company can service its debt and fund operations in good years, a prolonged downturn could severely test its financial resilience.
(4) Company characteristics
Business Strengths/Moats:
While operating in a challenging environment, Mycron has developed several key strengths:
Operational Efficiency & Technological Capability: A consistent theme is Mycron's investment in and focus on operational excellence. The implementation of a Manufacturing Execution System (MES) for real-time monitoring, and significant upgrades like the Acid Regeneration Plant (ARP) and Continuous Pickling Line (CPL) revamp, have led to documented cost savings, improved output quality, and enhanced efficiency.
Strategic Agility & Management Resilience: The company's leadership has demonstrated an ability to navigate severe crises and adapt to rapidly changing market conditions. This includes proactive financial risk management, such as FX hedging in FY2023, and bold strategic pivots, like the aggressive expansion into export markets in FY2024 which was crucial for its turnaround. Management has also been consistently praised in the yearly analyses for candid and transparent reporting, even during difficult periods.
Export Market Access & Development: Mycron has successfully cultivated export markets, transforming this from a minor activity into a significant revenue driver. The ability to tap into new geographical regions, particularly within the CPTPP bloc, by leveraging trade agreements and identifying market vacuums created by geopolitical situations, showcases a proactive approach to market diversification.
Early Mover Potential in Green Steel: The company's proactive engagement in developing low-carbon emission steel, through collaborations with Universiti Teknologi Malaysia (UTM) and JFE Steel Corporation of Japan, positions it as a potential early mover in an increasingly important market segment. This initiative, if successful and if market demand for premium green steel materializes, could offer a significant point of differentiation and a more sustainable competitive advantage. JFE Steel's own substantial global investments in low-carbon steel production underscore the strategic importance of this trend.
Established Domestic Presence & Anti-Dumping Advocacy: As a long-standing player in the Malaysian steel industry, Mycron possesses considerable experience in navigating the complex domestic trade policy landscape. It has often been at the forefront of efforts to combat unfair trade practices, including leading and supporting anti-dumping petitions. This advocacy, while resource-intensive, is crucial for maintaining a semblance of stability in its home market.
These strengths are largely operational and tactical—being efficient in production, agile in market response, and capable of producing quality products within a commodity framework. The "Green Steel" initiative, however, represents a move towards building a more structural moat based on product differentiation, which could fundamentally alter its competitive positioning if successful.
Business Weaknesses (Structural & Chronic):
Mycron grapples with several deep-seated weaknesses that are often structural to its business model and the broader steel industry:
Extreme Policy Dependence ("Policy Hostage"): This is arguably the most critical and persistent vulnerability. Mycron's profitability, and at times its operational viability, is profoundly dependent on Malaysian government trade policies, particularly the imposition and enforcement of anti-dumping duties, as well as regulations concerning raw material imports. Favourable court rulings or timely government intervention can provide significant boosts, while adverse decisions or policy gaps can be severely detrimental. This reliance creates an unstable operating environment where success is often dictated by regulatory favour rather than standalone market competitiveness.
Commodity Business Model ("Price Taker"): Mycron operates primarily as a converter of a commodity (HRC) into other commodity or semi-commodity products (CRC, steel tubes). This leaves it with very little pricing power, caught in a perpetual squeeze between volatile global raw material costs and finished goods prices that are heavily influenced by international supply/demand and import pressures.
Vulnerability to the "China Syndrome": The sheer scale of China's steel industry means its production levels, domestic demand, and export strategies effectively dictate regional and often global steel prices and competitive dynamics. Mycron has no insulation from this "China factor," which frequently leads to surges of low-priced imports into Malaysia.
Intense Domestic Market Competition & High Import Penetration: Despite its domestic manufacturing base, Mycron consistently struggles to compete effectively against cheap imports in its home market. This results in chronic under-utilization of its production capacity and forces it to accept thinner margins to defend market share.
Cash Flow Constraints & High Working Capital Needs: Even during profitable periods, Mycron has frequently reported tight cash flow conditions. This is often attributed to the substantial working capital required to finance expensive HRC inventory, especially when prices are high or volatile. Limited access to banking facilities, with banks sometimes showing a negative bias towards the steel sector, exacerbates this issue and has led to the company often withholding dividend payments.
High and Rising Domestic Operating Costs: The company is burdened by escalating operating costs in Malaysia, driven by national policies related to energy subsidies, minimum wages, and other regulatory compliance requirements. These rising costs further compress margins, particularly when selling prices are under pressure.
These weaknesses highlight a business model that, while managed with resilience and tactical skill, lacks the structural moats—such as unique intellectual property, dominant brand power, or significant network effects—that would provide sustainable insulation from the harsh realities of the global steel trade. The pursuit of green steel is a significant attempt to build such a moat by differentiating its product offering in a way that could command a premium and appeal to a growing segment of environmentally conscious consumers. The success of this long-term strategy will be crucial in mitigating Mycron's historical vulnerabilities.
(5) Valuation
Valuation Thesis: A Bet on Cyclical Turnaround with Asset Backing
The investment case for Mycron is not based on predictable earnings or a defensive business moat, but rather as a valuation-driven bet on a future cyclical turnaround. Given the company's inconsistent earnings and the volatile nature of the steel industry, forecasting future profits with any certainty is unreasonable.
Instead, the thesis rests on two core traits:
Staying Power: The company has demonstrated resilience through a consistently improving balance sheet, evidenced by a growing Net-Net Current Asset (NNCA) base and stable book value. This provides a margin of safety and the ability to weather industry downturns.
High Potential Reward: The combination of an extremely volatile business model and high leverage acts as a "two-edged sword." While dangerous during downturns, this same structure offers the potential for enormous rewards if the company successfully rides a future cycle uptrend.
The investment is an opportunistic play on volatility, predicated on the company's ability to survive until the next upswing, at which point its earnings power could normalize to a much higher level.
Valuation Based on Normalized Earnings Power
Due to the extreme fluctuations in profitability, a standard earnings forecast is not appropriate. A more suitable approach is to estimate a "normalized" level of earnings based on long-term historical performance and capitalize that value.
The valuation is calculated as follows:
Average Sales: The average sales level from 2011 to 2025 provides a reasonable baseline for the company's long-term revenue generation capacity. This figure is approximately RM 622 million.
Normalized Net Profit Margin: During good years, the company has achieved net income margins between 4% and 7%. A conservative margin of 2.5% is used for this valuation. This is more optimistic than the long-term average of 1% but remains significantly below peak profitability, acknowledging the business's inherent challenges.
Normalized Net Income: Applying the conservative margin to the average sales gives a normalized net income:
RM 622,000,000 (Average Sales) x 2.5% (Normalized Margin) = RM 15.55 million (approximately RM 16 million).
Capitalized Value: Using a 10% discount rate to capitalize these normalized earnings gives an estimated intrinsic value for the business:
RM 16,000,000 / 10% = RM 160 million.
Conclusion: Significant Potential Upside with Acknowledged Risks
Comparing the estimated intrinsic value to the company's current market capitalization reveals a significant potential for appreciation:
Estimated Intrinsic Value: RM 160 million
Current Market Cap: RM 92 million
Potential Upside: 74%
The valuation suggests that if Mycron can navigate the industry's volatility and its earnings revert to a conservative, normalized level in the future, the business could be worth approximately RM 160 million, offering a 74% return from its current price. This is further supported by the current Market Cap to NNCA ratio of only 0.59 times, its lowest point since 2016, indicating a potential undervaluation from an asset perspective. However, investors must weigh this potential reward against the significant risks of high leverage and the company's history of share dilutions.
End verdict
Based on a comprehensive analysis of its historical performance and financial structure, the final verdict on Mycron is that it represents a high-risk, high-reward investment suitable only for opportunistic investors betting on a cyclical turnaround. The company's primary appeal lies in its valuation, trading at a historically low market cap to NNCA ratio of 0.59 times, backed by a growing asset base and a stable long-term book value. A conservative valuation based on normalized earnings suggests a potential upside of over 70% from its current market cap of RM 92 million to an estimated value of RM 160 million, should the industry cycle turn favorable. Management has demonstrated strategic agility through a successful export pivot and a forward-looking "green steel" initiative. However, these strengths are arrayed against profound structural weaknesses. The business is a "policy hostage," critically dependent on favorable government anti-dumping rulings to remain profitable. This is combined with a high-leverage financing model—a "two-edged sword" where debt obligations are multiples of cash flow—and a history of diluting shareholder value by increasing its shares outstanding. Therefore, an investment in Mycron is a speculative play that its tangible asset base can provide sufficient "staying power" to survive the industry's brutal volatility until a cyclical upswing allows its earnings power to be realized.
