We profile steel stockist Asia Enterprise Holding in the past here at Investment Moats and I invest a little bit in it. [Analysis here>>]
The company announce their 3rd quarter 2011 profits this evening. Here are my take on it:
- Net Profit up 28% and Revenue up 82% since last Q2 2010. Both are good showing.
- This brings about a 6% increase in 9 months profit and 43% increase in 9 month revenue.
- Net Asset Value (NAV) is indicated at $0.32. Current traded share price is $0.21. The stock is currently trading 34% below NAV.
- Gross margin fell from 14% to 9.5%, mainly due to higher cost of inventory as inventory purchase recently are higher.
- Inventories and Receivables are much higher. Particularly Receivables saw a 100% increase. Trade Payables have increase a lot as well.
- Cash on hand was less, falling from 41 mil to 32 mil.
- Free cash flow was severely negative due to the increase in inventories and receivables. Overall for 9 months, free cash flow is also negative.
- The rise in inventories and receivables seems worrying, but according to the report, the management does not think it is a big issue.
- The outlook for the steel industry and demand looks to be robust for the developing countries. Management is cautiously optimistic but the key here is a control of how much inventory to stock up and the price they should stock up. I will not comment too much on this since I am not an expert in this area. I would rather watch the bottom line and next quarter’s cash flow statement to see if free cash flow improves.
- No dividends declared but we should expect a similar 3.8 mil payout which is a 7% yield. Even with free cash flow negative they can pay out years of 3.8 mil dividend before it becomes an issue.
- The company has zero debt. Their lifeline is in their cash, built up during good times. It is times like these that you need to keep the cash as working capital and not pay out all.
[AEH Q3 2011 Report >>]
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G
Saturday 5th of November 2011
Hi,
Nice write-ups on AEH.
I see a fundamental difference between Lee Metal (LM) and Asia Enterprise (AEH).
I view LM as more steel trading than stocking. For similar size companies, LM has much higher turnover and lower net profit margin than AEH. And to support the volume, it takes on much more debt as working capital. Typical of a steel trader.
SGH, Hupsteel are better comparisons for steel stockist.
G.
Drizzt
Saturday 5th of November 2011
Hi G, thanks for sharing. I believe alot of people are asking about Lee Metal. They and HG Metal look to be stockist who seem to be more risk taking.
Drizzt
Saturday 5th of November 2011
Hi GF thanks for correcting me! Man that means my yield is much lower. certainly forgot about the bonus issue. If its 40%, we should be looking at a bigger dividend payout.
GF
Thursday 3rd of November 2011
btw, dividend payout ratio has traditionally been about 40% of net profit.
GF
Thursday 3rd of November 2011
Hi Drizzt
The issued shares has increased from 273,534,000 last yr to 341,917,487 currently, with the conclusion of the 1 for 4 bonus share issue. So if we stick to the same dividend payout as last yr (3.8mil), the dividend should be 1.1 cents or about 5.5%, not 7%.
Personally I believe the dividend would be higher than 3.8mil though.
Cheers GF
ha
Thursday 3rd of November 2011
Is LeeMetal Group having a similar business as Asia Enterprise?
Drizzt
Saturday 5th of November 2011
Hi ha, yes i believe so, but LeeMetal, like all property wannabes, have a property component, so do evaluate if you are comfortable with that.