Monday, August 26, 2013

Asia Enterprises : All dependent on steel prices (UOBKH)

Asia Enterprises
Share Price S$0.230
All dependent on steel prices

Valuation
• Asia Enterprises (AEH) is trading at a forward PE and P/B of 14.4x and 0.7x respectively. Based on Bloomberg’s estimate, AEH has a 12- month target price of S$0.29 with a 2013F dividend yield of 4.35%.

Investment Highlights
• We attended AEH’s results presentation. AEH is a steel distributor that supplies steel products to the Marine and Offshore, Engineering and Construction sector. The company’s products are catered mostly to customers in Indonesia and Singapore.


• 1H13 net profit up slightly. AEH managed to increase net profit by 6% to S$3.0m, driven by improved margins despite lower revenue. Revenue fell 10% yoy in 1H13 as the rise in sales volume was negated by lower ASP. On a positive note, gross margin was 0.7ppt higher at 10.4% as compared to 9.7% in 1H12 due to a lower weighted average cost of inventory sold in 2Q13.

• Expect challenging conditions. The group expects to see challenging conditions going forward due to oversupply in the steel industry, weak macro-economic outlook on tighter financing rates and intense competition. AEH is currently holding the minimum inventory level in anticipation of a further drop in raw material prices and continued sluggish demand for steel.

Our View
• Inventory management is the key. AEH prides themselves as prudent steel distributors with superior inventory management capabilities. Profitability and margin expansion is dependent on the company’s accumulation of lower priced steel and sale to steel users during an uptrend while keeping inventories at a minimum when prices are on a downtrend.

• Strong balance sheet with 4.35% dividend yield. Over the years, the company has built up a strong war chest of S$45.0m net cash on its balance sheet, which represents 56.5% of its market capitalisation. According to Bloomberg consensus, AEH is also expected to pay out a dividend of 1 S cent per share for 2013, giving investors a yield of 4.35%.



Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date: 23/08/13

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Warren E. Buffett(沃伦•巴菲特)
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