Delong Q2 net profit slides 38% despite higher hot rolled coil sales

MAINBOARD-LISTED steelmaker Delong saw profits sink in the second quarter on thinner margins, research and development costs, and bank borrowings.

Net profit came in at 299.6 million yuan (S$59.6 million) for the three months to June 30, down by 38.1 per cent on the year before, according to unaudited results released on Friday.

Revenue was lower by 8.1 per cent year-on-year at 3.45 billion yuan, despite higher hot rolled coil sales, as the average selling price of the hot rolled coil decreased.

But administrative expenses swelled by 29.7 per cent to 109.9 million yuan on higher product development costs and higher headcounts at a newly formed, 80 per cent-owned Chinese subsidiary. Meanwhile, finance costs more than doubled, to 64 million yuan.

Delong also clocked wider shares of losses from associate Xingtai Xilan Zhongde Natural Gas Sales, as well as joint-venture steel project Dexin Steel Indonesia, which was more than five times deeper in the red for the quarter than in the year-ago period.

The 45 per cent-owned facility in Indonesia may not be operational until end-October, later than the end-June timeline that was previously expected, Delong added. It attributed the delay to a shortage of steel-related skilled labour in Sulawesi, as well as disruptions to construction works from an earthquake in Sulawesi and the recent Indonesian general election.

Earnings per share stood at 2.72 yuan, down from 4.40 yuan in the year prior, while net asset value was 59.27 yuan a share, against 55.17 yuan as at Dec 31, 2018.

No dividend has been recommended for the period, unchanged from the year before.

For the six months, net profit fell by 41.1 per cent to 450.7 million yuan, even as revenue ticked up by 2.9 per cent to 6.9 billion yuan.

The company noted in its outlook statement that the trade war between the United States and China could keep up the pressure on the Chinese economy.

"The overall business environment for steel players remains highly uncertain, as authorities push forward with efforts to curb over-capacity, with a view towards reducing domestic steel capacity to less than one billion tonnes by 2025," China-based Delong added, citing capacity-reduction targets in Hebei province.

"While the abovementioned measures have not affected Delong's operations, the group does not discount the possibility that the implementation of any further tightening measures may invariably impact its operations and commercial viability."

Trading in Delong shares has been suspended since July 24. The counter last closed at S$6.01.