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.

Random thoughts: 2015 1H review of the Mind of investing

This review is not so much about the Method of investing, but rather the Mind. 

The market corrected 10% and has stable, at least for now. This is finally a meaningful correction for quite some years.

When we talk about the Mind, we ask about discomfort. The really weird thing is I am not yet uncomfortable about the real paper loss, but felt rather unhappy seeing  Venture going up and up in this correction.

The mind is more at peace with correction since I have a fair bit of cash. 

I also thought I will be rather happy if the market goes up since I am also vested.

There are counters that went up and up after I sold them before but I hardly feel anything. I wonder why? CES is sold at 70 cents and YZJ at 1.14 when the news of lawsuit first emerged.

Why is VENTURE so special? Since this is not a Method Exercise, I will skip it.

I think beside the target price and business operation analysis, the next question we really need to ask before we sell is: what is the alternative? 

Also, we must also ask ourselves if we will be ok, if we are right about the operation and earnings but wrong about price movements. If we buy, are we able to very relaxingly say "just hold and wait lor" if we sell, can we just say:" find another lor, it has some inherent risk too what..."

I need to emphasized this is not about not sticking to buy and hold, it is about making better buy sell

Decisions that sit better with the Mind. 

Q2 results review of Sembcorp Industries

I choke on the Sembcorp cigar puff. It did bounce with a relative better results as compared to expectations. But I bought at $3.85, thinking it was touched a low. LOL

Sembcorp Utilities

In my previous post, I mentioned that Sembcorp Industries should be better QoQ. The numbers did not disappoint, and the overseas utility did offset somewhat the continued weakness in Singapore Market.

The fall could have been much worse if the overseas market did not pick up the slack.

However, the numbers are puzzling. Given that overseas net profits increase QoQ, one would have attribute the increase of the main contributor would have to be India, the only new expansion from Q1. However, Management only attribute the higher turnover to the "India factor" but not net profits. If you look at the breakdown of India and others Net profits from Q1 to Q2, it is the Middle East that has profits increasing.

Going forward, Singapore market is going to get worse with "Vesting contract levels have fallen from 40% to 30% in 1H2015, and will fall further to 25% in 2H2015"

India 2nd Power Plant and soon China Biggest Water Treatment Plant Changzhi will come online soon 

This quarter results makes me wonder how long the gestation period of this new projects will be to bottom line. 

But in the longer run, I am satisfied with the Utility segment expansion. 

Marine

Marine is definitely going to do worse. Delay in deliveries is actually the better option that is happening as the worse is Brazil Sete cancelling its Drillships orders.

Sete update of its drilling ships and projects report is here (announced on 30 June):

http://ri.setebr.com/enu/58/Rigs%20Physical%20Progress%20-%20Jun%2715.pdf 

You can only find 4 out of the 7 drill ships order in that update. The other 3 drillships have not start construction, According to management, "more than 80% of the first Sete Brasil drillship has been completed, followed by 74% for the second, 60% for the third and 30% for the fourth. These projects remain cash positive." Given that the first ship is already delayed, the last 3 orders are really hanging in thin air.

Just on 15 June, they still have an update of 29 rigs or drillships. However, it has already being reported Sete need to restructure to access bank credits and only 14 rigs or drillships will be built and another 5 will be co-owned. 

The million dollar question is which project will be axed and will sembmarine drillship be axed?

 From the chart, I look up the various operators of the drillships.

Odfjell Drilling:

http://hugin.info/157018/R/1923447/689760.pdf   page 7, there is no information on delay in construction or downsizing or cutting of cost.

However, the operator still go back to Petrobas. So Petrobas's fate really affect many.

Seadrill:

A big mystery here. As you can see from the above chart, 3 drillships will be operated by Seadrill. But the whole of seadrill fleet (even those under construction) did not include any of the 3 ships.

I thought they might have change the ship name. So I look up the details of the drillships one by one

http://www.seadrill.com/our-fleet.aspx

They are mainly constructed by Korea yards, and mainly Samsung Yard.

Perhaps construction has not started? But Camburi has started construction last year. 

This is a black hole of information. 

In the short run, the 7 drill ships will be a curse, as BOth Odfjell and Seadrill talk about delaying some of their newbuilds.

In the longer run, how long this oversupply of oil will last is everyone guess. Although Seadrill believe the replacement of older rigs for better specs ones will continue. 

Conclusion

I have accumulated, but get ready for rough ride.

Not for the faint-hearted.

This should well be my last accumulation.

Random thoughts: The work ethnics of the older generation

My father had a tough life bringing the three of us up. I remembered the days as a hawker, we slept at 1 a.m. After clearing up the stall and he wakes up at 7 to prepare for the next working day. He and my mum tells me to study hard, so that I need not work so hard when I grow up. 

I didn't  like the job of a hawker too. I find it dirty, having to clear the leftovers food every night.

Fast forward to now, I am a successful "office worker", in my parents' eyes, staying in the comfort of  air - con room as we work. ( not true for teachers )

Readers will know I tend to whine and complain ocassionally. But recently, I really have to take my hat off 2 colleagues. Both nearing retirement age.

We are all overwhelm with work but these 2 seniors have more projects at hand than me. One of them told me she has been sleeping at 2 am for the past few weeks. 

Wow. Staying up till 2 am to blog and do what we like is a totally different thing from staying up to clear deadlines.

Another colleague and I were in charge of the running of the examinations. It was a lot of work and she being the head is coughing badly for the past week. When the exams are over, I thought she would take a short "MC".

Nope, her voice is coarse now with all the coughing and she still reports to work. 

It is definitely not because of money. She has several properties under her name and one of which is a landed property. Humble, she did mention she can retire anytime.

I also know of teachers who are passionate and have a calling to do their best for the kids. But the work we are doing is hardly energizing and it's taking a lot of time away from the pupils. 

Why are they doing this if not for passion or money? 

I think it's sheer grit.

Whether that serve any higher purpose  I have no comments, but they sure earn my respect.

But I would not want to emulate them

With all due respect. 

Random thoughts: A tribute to SG50

A broken family.

A unwanted child, turn rebellious, out to prove others wrong.

Against all odds, he grow.

Competitive, always spoiling for a fight. 

A fight to win.

Pragmatism, is his character.

Meritocracy, his value. 

With nothing, he became rich.

After 50 years, the search for soul began in Ernest.

Who actually am I?

Why did I work so hard for?

Everyone growing man get lost at times.

The future is the search inwards.

The future is the connections and bonds with family.

Confidence for another 50 years. 

Commodity super down cycle? - Part 1

Noble Group crash of more than 30% in a week is the trigger for me to look commodity again. I have initially wanted to take a punt on Noble Group as I thought even with the write down on its Yancoal assets, it is trading at too heavy a discount to NAV. But the search lead me to somewhere else.

Some pictures first.

With the exception of First Resources (The third is Olam, Name got cut off), all counters have experienced a drop of at least 50% from its peak.

Golden agri and First resources were on my radar, both show a deterioration of earnings due to the weak CPO price, but First resources was incredibly resilient. It was better plantation profile and the "growth" in production might be the reason why the company holds up well. The growth in production would have somewhat offset the weakness in price.

I then went on to take a brief run using Bloomberg on the companies earnings, balance sheet and cash flow. Do note that Bloomberg numbers are not always 100% accurate, but it serve as a good preliminary screen nonetheless.

I was then drawn to the fact that Wilmar has rather resilient positive FCF, and given the bulk of Wilmar's earning still come from palm oil. I decided to look further. I check the ARs Wilmar and the +ve FCF is correct. They have also start to reduce their debt. 

Going back to the previous point about plantation profile, while Wilmar did not have as young a profile of plantation as First resources, it is still younger than Golden Agri and they deliberately show the profile of 15-17 years old (Still prime but going beyond 18). 

First picture belong to First Resources,then Wilmar and lastly Golden Agri.

I also saw clear possible "growth engines" in terms of the consumer production (Its profits has been growing for the past 5 years), especially since they have now acquire Goodman Felder. The impact of this acquisition will show in the 2Q.

Given that Market "might" be correcting in the weeks ahead , possibly due to worsening of Malaysia's Situation having a knock on impact on Singapore, I decided I will read up more on Wilmar and will update accordingly when my research is done. 

Only bug again is the low dividend of 2.5%.

Random thoughts: A great place to see NDP fireworks

The meadow at Gardens by the bay.

I hate crowds. The big grass patch at the meadows is spacious enough so that the next group of family having a pinic is at least several meters away.

We had a dinner cum picnic as my family watch the fly past. 

The super structure trees also treated us with a light show as we wait for the fireworks. 

The toilet is nearby.  

View is nice. 

Will bring my parents there again next Sunday.

The fire works is slightly blocked by the sands, but for the breeze due to the big space available and also the big space for me to stretch my legs. I am

Willing to make do with a lesser view