Lee metals group- more findings.

Lee metals is really getting interesting.

Here is a few more updates.

Preliminary calculations of the Austville EC contribution to EPS will be 5.2 cents, almost the whole of 2012 EPS. 

They are buying 1 Tuas Ave 8 and 3 Tuas Ave 8 and also a unit01-10 from E-center,  from NH ceramics. The purchases are pending JTC approval, and will be known by the end of this month.  The purchase price will be about $15 million. The leases of the 2 properties will end in 2027, so depreciation will be about 500k per building annually 

Lee metals intend to use the Tuas properties for the expansion of its fabrication and manufacturing segment, which is doing brisk business due to the construction boom. Its fabrication and manufacturing turnover has been increasing for years, so there might be reasons to believe that they are operating at near capacity.

If they do expect, they will also need to increase capex for machinery. They already have loans of about 193 million. They have mentioned they will use internal resources and external borrowings to fiance these acquisitions.  

So assume interest rate at the normalized 4% and increased gearing to $200 million for easy calculation, they are rolling over short term debts, so interest rate should be much lower, but that is also more risky, depending on the sources of loans (Not disclosed in AR), there is recall risk, although highly unlikely barring an heavy inventory write down due to a collapse of steel price.

4% will lead to higher interest cost of 6 million, shaving off 1.3 cents in earnings.

Accounting for the higher costs, and the increase in NP from manufacturing segment over the next 2 years, and the sector outlook, I think we can get 3 cents, 4 cents, 2 cents, and thereafter at least 1 cents of dividends in 2013, 2014, 2015 and thereafter.

China will be tacking the Steel Mills for oversupply, Singapore Land Use plan intend to add 700,000 housings by 2030, after the downtown line, there is the thomas line, the MRT lines will keep the industry busy till 2020. 

Barring the risk of economic melt down of the scale of 2009, leading to freefall in steel demand and hence prices, the downside risk in this counter seem contained.

What about entry price?

Assume the weaker mean years earning of 4 cents, and dividends of 1.5 cents, I would think 30 cents will offer good margin of safety.

Current price is also very attractive to me, as there are the Austvillve catalyst next year and earning visibility till 2015, and earning viability till 2020 perhaps. 

Excited, but will find out more before I take the plunge...