Sunday, February 23, 2014

Lee metals: Year of record earnings and record dividend payout

Lee metals is the only counter thus far that provide results that I expected.

Lippomall and Sabana are both disappointment.

Dividends increase from 2.5 cents to 3.5 cents.

At closing price of 39 cents, it is giving a yield of 8.9%. Beating most reits or trusts.

Is it sustainable?

Yes, IMHO, but only for 1 more year, as earnings from Austville will be realised this year. The EPS of 5.2 cents from that project itself (for calculation, see http://sillyinvestor.wordpress.com/2013/10/30/property-counters-determining-future-earnings/), should allow payment of DPS of 3.5 cents, a perhaps some "special" dividends. 2015 onwards, it will have to depend on operations, but dividends of 2 cents, is normal dividends, which I believe the management can manage.

Take away the 1 off-gain of amost 3 million from disposal of subsidiary, Lee metals will still be earning 37 mio net profits, still a record earnings.

With the higher EPS, the company has been fair to shareholder, with payout of 40%, which to me, is not demanding on the company finances. (Lee metals have payout of 30% to 50%, if we do include anormal years of 10% and 70%, which happen only once in their decade history )

FCF is 22 million, payout is 16.4 million. No strain on finances. CCC has increased to 114 days, the second highest in a decade. As for ROE, ROA, ROIC, inventory and receivables  t/o, there is no red flag. Most are stable.

So what is the catch?

After 2015, competition is expected to increase, and supply are expected to exceed demand. That is the outlook of BRC asia, an competitor of Lee metals. Lee metals also expect competition to increase, but they are still expanding.

Lee metals have a good 10 year track record, I will enjoy the ride first. Given that it is so thinly traded, it doesn't take much for the share price to breakout to the upside or downside.

2 comments:

  1. hi like your analysis! However some pts to note:

    .think 5.2cts of EPS from austville too high? 3.5cts more realistic?
    .have 2m of rental earnings in 2014
    .Actual earnings of company is higher as they adopt accelerated depre for their PPE (5 years) which is nearly twice faster than competitors.
    .Balance sheet has improved tremendously, with net gearing falling over the 3 years.
    .Steel trading make much more op profit in 2013 vs 2012, amidst a lower steel price environment and lower turnover.

    Keep writing :)!

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  2. Thanks Pui Pui dog,

    Do leave your insights too. I like to see things from more perspective. I didn't calculate costs, I calculate rev to be collected from austville and give a 20% margin. If it is aggressive, then 15% or so give a eps closer to your estimate

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