We profile steel stockist Asia Enterprise Holding in the past here at Investment Moats and I invest a little bit in it. [Analysis here>>]
The company announce their 3rd quarter 2011 profits this evening. Here are my take on it:
- Net Profit up 28% and Revenue up 82% since last Q2 2010. Both are good showing.
- This brings about a 6% increase in 9 months profit and 43% increase in 9 month revenue.
- Net Asset Value (NAV) is indicated at $0.32. Current traded share price is $0.21. The stock is currently trading 34% below NAV.
- Gross margin fell from 14% to 9.5%, mainly due to higher cost of inventory as inventory purchase recently are higher.
- Inventories and Receivables are much higher. Particularly Receivables saw a 100% increase. Trade Payables have increase a lot as well.
- Cash on hand was less, falling from 41 mil to 32 mil.
- Free cash flow was severely negative due to the increase in inventories and receivables. Overall for 9 months, free cash flow is also negative.
- The rise in inventories and receivables seems worrying, but according to the report, the management does not think it is a big issue.
- The outlook for the steel industry and demand looks to be robust for the developing countries. Management is cautiously optimistic but the key here is a control of how much inventory to stock up and the price they should stock up. I will not comment too much on this since I am not an expert in this area. I would rather watch the bottom line and next quarter’s cash flow statement to see if free cash flow improves.
- No dividends declared but we should expect a similar 3.8 mil payout which is a 7% yield. Even with free cash flow negative they can pay out years of 3.8 mil dividend before it becomes an issue.
- The company has zero debt. Their lifeline is in their cash, built up during good times. It is times like these that you need to keep the cash as working capital and not pay out all.
[AEH Q3 2011 Report >>]