Sunday, August 9, 2015

Lee metals Review -- Poor results expected, but not panicking yet

Lee metals report a poor set of results.

I am not panicking yet.

The poor comparison of YOY results is due to Lee metals locking in Austville profits in 2Q in 2014.

Without this one-off item, the fall in profits would be less than 30%

Dividends was maintained.

After the bumper years of 2013 and 2014, I expect 2 cents dividends from Lee metals for the rough years ahead.

QoQ profits is relatively stable at 4 mio, or close to 1 cent EPS.

To maintain dividends, Lee metals need to pay 50-60% of earnings, assuming the 1 EPS can be maintained. I predict Lee metals would pay either 1.5 - 2 cents dividends in total for 2015.

Next, with the exception of Sin Ghee Huat, which is in the niche Nickel steel segment, Asia Enterprise, Hupsteel reported or going to report loss for the current quarter. BRC is still turning a profits but the fall is more drastic compare to Lee metals. It reinforced that Lee Metals is the alpha company in the Steel business. Nam Lee Pressed Metals Quarter report was not out yet.

However, this is no catalyst in the near time for this company.

Just have to feed on dividends.

I however, do know that the steel market is going to the dogs for years, mainly due to the fact that China is over producing and under consuming (Property sector in doldrums)

CCC for 1H 2015 is still high at 127 days. The same as 2014.

The high CCC however is a risk for impairment or rundown of inventory.

2 comments:

  1. A lot of times I asked myself when will these metal / steel companies finally encounter the catalyst needed to propel their prices north to reflect their actual value. Most of them are "value buys" and Nam Lee is actually on my watch / to purchase list but there's always that reluctance to buy it on the basis that the steel industry gonna stay really sleepy for a long time.

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    Replies
    1. Hi Philip,

      I have my reservation on Nam Lee, especially it's relationship with transicold.

      In terms of manufacturing and Fab, it's share of the local construction is small, a great part of the turnover depend on transicold continue to use namlee as a supplier.

      You are right about the lack of catalysts, perhaps even in years.

      My approach is simple, taken from Peter lynch. Buy cyclicals at the right time. I follow the same approach when I bought YZJ at av. Price of 90cents. I would have hold it till now if not for the HTM lawsuit scare. Since HTM is a known risk for YZJ.

      The good thing about this approach is u need not do super lots of calculation to find the alpha company of the sector ....

      When China shipping is in doldrums, YZJ is the most profitable yard.
      NOL is the negative example if u compare it with its peers. So that is why I have not vested in NOL although it is also cyclival


      When steel stockists is in dildrums, Lee metals is in good shape, as it scale down it merchandising arm and was helped last year by the sale of austville

      We know China property sector is in dildrums too, but they have the means to reduce the Interest and reduce curbs to boast it. Although I not sure if they will do it anytime soon since the bubble just stop growing recently.

      But with pressure mounting on China, and China acting to consolidate the steel
      Industry, it will be a "perfect timing" when supply is coming down and at time when China release the curbs on building ... Property is the single latest consumer of steel.

      How long before that happens is everyone guess. But I do not really mind getting a decent yield as I wait.

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