We talked about steel stockist Asia Enterprise Holdings Q3 2011 results yesterday. This week The Edge profiled HG Metal, a steel stockist that got into a bit of an issue during the last financial crisis. [AEH Q3 Report here>>]
This presents a good case study for steel stockist investors or interested investors to manage their expectations as to whether this is a business they want to be invested in.
Some steel stockist list on the SGX includes Asia Enterprise Holdings, Lee Metal, Sin Ghee Huat, HG Metal, Natsteel.
- When the 2007 financial crisis hits, steel prices collapse from USD$1,200 to USD$500.
- HG Metal, gearing up for great growth have stocked up quite a big of inventory, and it killed them.
- There was internal strife and directors tried to oust other directors.
- Current CEO recently took over the management of the company. He owns companies that include Oriental Castle Sdn Bhd, a foundation steel works specialist with projects around Southeast Asia and China.
- Most of the steel stock price decline took place in Aug and Sep 2008 and stayed depressed for 9 months.
- Essentially their bought inventories, goes into their cost of goods sold, is much freaking higher than their average sale prices.
- Current CEO convinced HG Metal have turned the corner. Sold down inventory very quickly, paid back every single bank and supplier. Every debt was honored and no one took a haircut.
- The CEO allowed his own shares to be diluted when they did a placement
- CEO wants to pooled contacts between Oriental Castle and HG Metal to create customized demand steel products for customers
- As a stockist, the company is capable of supplying some 2,000 different steel products that can meet just about all but the most specialised needs.
- The company intends to stock higher grade products such as high-strength beams and abrasion resistant plates.
- The CEO thinks the major revenue for now is still in the distribution business.
- To improve operations, Deloitte was appointed to conduct a comprehensive internal audit of its processes and systems.
- Associate professor Chiew Sing Ping, division head of structures and mechanics at NTU school of Civil and Environmental Engineering as been asked to advise on technical and quality issues.
- He intends to gear the balance sheet more since current gearing is only 0.3 times.
- Margins have been indicated being tighter during this ongoing eurozone debt crisis.
- CEO is keen to pay dividends but will not commit yet.
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