It is reported that Malaysia Steel Works Bhd is expected to see its net profit accelerate at a strong double digit growth in the next 3 years on the back of the group's expansion plans, which would help enhance its operating margin despite steel product prices remain subdued.

Mr Chong Hoe Leong, PublicInvest Research analyst, said that Masteel's net profit is likely grow in the range of 22% to 30% for financial years ended December 31st 2013 to 2015 as it ramps up its production capacity in the upstream and downstream segments.

This is based on PublicInvest in-house assumption of MYR 1,850 per tonne and MYR 2,000 per tonne for billet and rebar respectively, coupled with Masteel management's guidance of 85% utilization rate of its production plants.

For Q1FY13, Masteel recorded a MYR 3.6 million net profit and Chong expects the group's net profit growth will be much stronger in the remaining quarters.

Currently, Masteel is expanding its capacity for upstream and downstream products as it foresees better demand for steel products in the coming years.

As the steel industry is highly tied to the performance of the construction sector and is cyclical in nature, Chong noted that Masteel has cautiously expanded its capacity to improve its operating margins through better economies of scale.

The group has earmarked MYR 180 million to increase its billet plant capacity with an additional 50,000 tonnes by 2014, while also increasing its rolling mill capacity by 50,000 tonnes per year to 550,000 tonnes.

Mr Chong said that "When the upgrade and expansion works have been fully completed, Masteel's ratio of steel bar to billet annual production will be equally the same. The expansion plan will augur well for the company's future growth given that its utilization rate for the last three years has hit above 80%. All the expansion is expected to cater to on-going local demand."