These days, one could hardly flip open the papers and not read about the escalating prices of various commodities, unless of course, you are Captain Nemo.

But if there is one company that has emerged unscathed from the higher prices, HG Metal Manufacturing (HG) would be at the top of the list.

“Demand for steel both locally and globally is expected to remain robust”, remarked Wee Piew, CEO of HG in a tête-à-tête with Shares Investment (Singapore). Citing the commencement of the first Integrated Resort in 2009 and a list of upcoming projects, Wee radiated confidence in the prospects of HG.

If history is a good guide, then the leading steel stockist in Singapore and Southeast Asia can certainly be counted on to deliver the goods. Listed in 2002, HG has reported 5 straight years of commendable growth.

Its latest 1H08 results continued this string of growth with net profit surging more than 400% to $18.6m on higher revenue, surpassing the entire FY07 earnings of $18.1m. More noteworthy though is the improvement in gross profit margin, which has trended upwards to 15.6% from 9.5% in 1H07.

Higher demand came from the construction and shipbuilding sectors, the twin pillars of HG’s business.

Reflecting the positive results, HG’s shares staged a remarkable comeback and rocketed to the $0.40 level. Trading at 9x FY07 earnings, HG remains a steal, even with the latest climb.

Venturing Into The North
In February 2007, HG purchased 5 plots of industrial land totaling 26.18 acres in Nusajaya Industrial Park, which is part of the Iskandar Development Region (IDR), in a decisive move.

Located in Johore and encompassing almost 70% of the state’s GDP, IDR is strategically positioned between the booming economies of India and China. The Malaysian government sees the area as the keystone of its plan to develop the southern tip of West Malaysia.

Construction has commenced on a warehouse and an office block on the smallest plot of the industrial land. With the scheduled completion in 1H09, HG will be well equipped with an additional 11% warehouse capacity that will allow it to expand operations in Malaysia, which hitherto accounts for 20% to 30% of its sales.

Manufacturing is not forgotten either. Although Oriental Metals, HG’s subsidiary and manufacturing arm contributes a small portion of total turnover, the capability of manufacturing its own customised steel products gives HG an unassailable edge over its competitors. Seeking to preserve its advantage, HG is mulling the possibility of setting up a pipe manufacturing plant on the same site.

Macroeconomic Factors Weighs Positively
The Ninth Malaysian plan across the causeway with billions allocated for infrastructure development and the local construction boom should underpin growth in the next 5 years. Further, if steel prices continue to rise, HG will benefit from higher gross margins. Nonetheless, the steel business being capital intensive may restrict HG’s capacity to seal deals unless adequate funding is found.