Page 14 - Annual Report English 2018

Tycoons Worldwide Group (Thailand) Plc.

3. Risk factors

3.1 Sales risks

3.1.1 Global economic situation

Steel consumption is closely related to economic growth because economic growth
influences industries that consume steel such as construction, automobile, and
endurable goods. The global economy has recently been in recession, and demand
for steel has been weak. The stagnation of demand is likely to make a negative
impact on TYCN’s revenue and profit. According to the forecast from IMF, global
GDP growth rate will be 3.7% in 2019, which same with 2018. However, that is not
high enough, and there are lots of uncertainties around the world such as
geopolitical conflicts, Brexit, Trump’s new policies, protectionism, tightening of the
monetary policies of both the U.S. and Europe.

On March 8, 2018, Trump signed steel and aluminum tariffs that imposes 25% duty
on steel and 10% charge on aluminum, which took effect on Mar 23, 2018. TYCN's
export to U.S. is only 2.56% of its sales, therefore the tariff does not bother TYCN's
export. However, the long term influence of US-China trade war can not be ignored.
According to WSA's forecast in Oct., 2018, global demand of steel will reach 1.68
billion tons in 2019, a 1.4% growth from 2018. Although it is a growth, the growth
rate is small than 2018(3.9%) due to the fact that trade war is likely to cause
negative effect on steel demand.

3.1.2 Product and raw material price

TYCN’s major raw materials for downstream products are billets and wire rods.
Therefore, billet and wire rod prices play an important role when it comes to sales,
cost, and profit. TYCN’s raw materials are majorly from TY, and besides TY, are
from China. As the largest steel producing country, China‘s policy on producing and
selling steel will directly affect global steel prices. TYCN’s raw material and
product prices fluctuate with global prices, further influencing the company’s
revenue and profit. In order to reduce the risk of material price, TYCN and TGI
jointly set up TY to secure billet sources and reduce billet cost. In 2018, 60% of raw
materials were from TY, while 40% were from China. TY is expected to provide
TYCN with 60% of raw materials in 2019, further reducing the risk of raw material
price.

3.1.3 Potential competitors

As the AEC, ASEAN Economic Community, has been setup by ASEAN on January
st
1 , 2016, China, the U.S., Japan and other countries has launched new ASEAN
strategies, pledging that they will strengthen business relationship with the AEC,
and the investments in ASEAN has attracted more global attentions. Therefore, the
impact of China’s capacity-offshoring policy on Thailand and ASEAN’s steel
industry deserves watching.
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