Hsin Kuang Steel Co (新光鋼鐵) shares have outperformed the local main bourse by 42.3 percent in the year to date, reflecting investor optimism about contributions from the company’s stake in the development of “green” energy, including solar and wind power.
The performance is also buoyed by positive market sentiment toward Hsin Kuang’s investment gains this year, underpinned by the company’s 11 percent stake in Century Iron & Steel Industrial Co (CISI, 世紀鋼構) and the expectation that it could fulfill most of CISI’s steel orders for use in domestic offshore wind farm development.
However, the company might not deliver any products related to offshore wind turbines until next year and its steel-material order book for high-end smartphones appeared small in the first quarter, while orders for new products have not been finalized, Capital Investment Management Corp (群益投顧) analyst Ivy Liu (劉炘) said in a client note.
With high-margin orders for steel materials likely to be fewer this year than last year, Hsin Kuang’s revenue would drop 4.09 percent to NT$8.01 billion (US$274.8 million) this year, but net profit could grow 38.63 percent to NT$1.48 billion, or NT$4.83 per share, due to substantial valuation gains on its investment in CISI last quarter, Liu said.
Hsin Kuang shares on Tuesday rose 3.33 percent to close at NT$40.3 in Taipei trading and the stock has risen 43.93 percent this year, compared with the broader market’s 1.68 percent increase over the period, while CISI shares traded at NT$84.1 after surging 296.7 percent in the year to date, Taiwan Stock Exchange data showed.
Since last year, Hsin Kuang has been developing steel-plate roofs for solar power generation and installed rooftop photovoltaic systems at all of its plants. The company has also won certification for steel-bracket welding, which is applied in offshore wind turbine foundations, and invested in recoiler and decoiler equipment for the production of steel coil.
Net profit grew 42.59 percent annually to NT$1.07 billion last year, or NT$3.48 per share, with consolidated revenue increasing 30.26 percent to NT$8.35 billion. However, gross margin decreased from 14.3 percent to 13.34 percent, reflecting the effects of narrowing margins between steelmakers’ products and raw materials, such as coking coal and iron ore.
Hsin Kuang’s outstanding earnings last year were mainly derived from its holding of nearly 20 million CISI shares and its investment in Mason Metal Industry Co (美生金屬) in the fourth quarter of last year, as the company continues its efforts to integrate upstream and downstream suppliers, Liu said.
CISI is Hsin Kuang’s downstream client and a major contender in the nation’s offshore wind farm projects, while Mason Metal is a steelcutter that supplies steel plates to Japanese automakers.
“Hsin Kuang’s core business is expected to be stable in 2018 with considerable gains on investment valuation,” Liu said in a note on March 31. “Although these investments are not Hsin Kuang’s core business, the company has still generated earnings through its steel business.”