Assessing Hiap Teck Venture Berhad's 9.2% CAGR: Sustainable Value Creation or a Temporary Growth Spurt?

The question of whether Hiap Teck Venture Berhad (KLSE:HIAPTEK) has achieved sustainable value creation through its reported 9.2% compound annual growth rate (CAGR) requires a nuanced analysis of its financial performance, industry dynamics, and strategic positioning. While the company's recent financial turnaround is impressive, structural challenges in the Malaysian steel sector and global market headwinds raise critical questions about the longevity of its growth trajectory.

Financial Performance: A Turnaround Story

Hiap Teck's financials reveal a dramatic shift in fortunes. In 2018, the company reported revenue of RM932.9 million, according to the company's investor relations, but net losses persisted due to its struggling joint venture Eastern Steel Sdn Bhd, as reported by The Edge Malaysia. By 2023, however, revenue had surged to RM1.585 billion, according to Finbox, and net profit for FY2024 (ended July 31, 2024) skyrocketed to RM106.3 million—a threefold increase from RM30.91 million in FY2023, according to an i3investor report. This growth, driven by stable steel prices and improved operational margins, suggests a robust recovery.

Calculating the CAGR from 2018 to 2023 using these figures yields a 11.7% annualized growth rate, exceeding the 9.2% claim. However, this masks volatility: between 2018 and 2020, Hiap Teck posted net losses, as noted in the i3investor report, and revenue declined by 21.38% in 2020. The 10.3% average annual revenue growth from 2020 to 2023 reported by Finbox reflects a post-pandemic rebound rather than consistent long-term momentum.

Industry Context: Growth Amid Structural Challenges

The Malaysian steel industry has expanded rapidly, with crude steel production rising from 2.8 million metric tons (mt) in 2017 to 8.8 million mt in 2024, a 17.7% CAGR according to Finbox data. This growth is fueled by infrastructure demand, particularly in construction, which accounts for 63% of domestic steel consumption, according to a MIDA report. However, the sector faces overcapacity, environmental pressures, and reliance on imported raw materials.

Government interventions, such as a two-year moratorium on new steel projects (effective August 2023), are outlined in the MIDA report and aim to address overcapacity but may constrain future expansion. Additionally, the impending carbon tax in Budget 2025 could elevate operational costs, squeezing profit margins, as discussed in the i3investor report. These factors create a mixed outlook for Hiap Teck, which must balance growth with sustainability.

Sustainability Indicators: Debt, ROE, and Strategic Moves

Hiap Teck's financial health shows improvement. Debt levels decreased from RM608.5 million in 2023 to RM565.5 million in 2024, while cash reserves stood at RM93.88 million, according to the i3investor report. Its return on equity (ROE) of 7.4% is modest but aligns with industry averages. However, the company's reliance on a single product line (steel pipes and scaffolding) and exposure to volatile global steel prices remain risks.

Strategically, Hiap Teck's completion of a hot rolled coil plant diversifies its offerings and enhances competitiveness. This move could position the company to capture regional export opportunities, particularly as Malaysia aims to increase higher-grade steel exports, as highlighted in the MIDA report.

Analyst Perspectives: Caution and Optimism

Analysts highlight both opportunities and risks. Wright Investors' Service noted in 2018 that Hiap Teck's turnaround hinged on resolving Eastern Steel's losses, a challenge the company has since addressed, as reported by The Edge Malaysia. More recently, The Edge Malaysia observed that while global steel prices stabilized due to Chinese stimulus, long-term risks include U.S. tariff hikes and China's slowing real estate sector, points also covered in the i3investor report.

Conclusion: A Cautious Verdict

Hiap Teck's 9.2% CAGR appears to reflect a combination of post-pandemic recovery and strategic operational improvements rather than a purely sustainable model. While the company's FY2024 performance is encouraging, structural industry challenges—overcapacity, environmental regulations, and global market volatility—pose significant headwinds. For long-term shareholder value, Hiap Teck must continue to innovate, reduce debt, and diversify its product portfolio. Investors should monitor its ability to navigate these challenges while capitalizing on Malaysia's infrastructure-driven demand.