Asia Enterprise Holdings

(17-03-2016, 09:18 PM)BlueKelah Wrote:

(17-03-2016, 08:05 PM)beau Wrote: At the current price of 17 cents, they are trading at 0.88x net cash. This is a business that has 55 years of longevity in Singapore. I'm surprised they're not yet doing any buybacks at the current price.

During GFC 2009 the share price went as low as 11cents. Management if they are interested would probably start buying back shares only around that level if they wanted since today's closing at 0.165 is not that low yet. Besides only 200 lots done today that push the price down so its pretty easy for them to push price up if they want anytime.

If anything, the share price could be telling us something about the our economy...

If I am not wrong, this company has never had any history of buybacks regardless of the price.
They'd need to get shareholder mandate to do that too.

Yes, it is quite crazy that the net cash is actually more than the current share price.
So technically... one can buy out the company at the current price, pay off all the liabilities with the company's OWN cash, and still get a nice sum left.
oh, and the assets etc would all be free.

(17-03-2016, 09:18 PM)BlueKelah Wrote:

(17-03-2016, 08:05 PM)beau Wrote: At the current price of 17 cents, they are trading at 0.88x net cash. This is a business that has 55 years of longevity in Singapore. I'm surprised they're not yet doing any buybacks at the current price.

During GFC 2009 the share price went as low as 11cents. Management if they are interested would probably start buying back shares only around that level if they wanted since today's closing at 0.165 is not that low yet. Besides only 200 lots done today that push the price down so its pretty easy for them to push price up if they want anytime.

If anything, the share price could be telling us something about the our economy...

Even at 11 cents, I don't believe they were trading below net cash in 09. Going by the 09 AR, net cash was around 28m. It is now almost 70m.

(17-03-2016, 08:05 PM)beau Wrote: At the current price of 17 cents, they are trading at 0.88x net cash. This is a business that has 55 years of longevity in Singapore. I'm surprised they're not yet doing any buybacks at the current price.

When it comes to steel most of them (IIRC) have high cash. I used to calculate their current asset based on 20%,50% discount on receivables and they would still have current asset > total liabilities. 

However, I got a feeling that the "cash" they have is behaving more like long term asset than current asset. The stockist mode of operation probably required a lot of liquid cash. Cash is like the "plant and equipment" for them to do business. Therefore, this cash horde is not for capex, buybacks or special dividend. Which is why I didn't get too excited with their net asset.  

Maybe you could look at whether there's any director buying or not to understand how confident they are. 

It is a conservative company with consistent dividends. Be cautious and one could pilot a ship for ten thousand years 小心驶得万年船. You will be safe on this ship but you might not like the speed  it is travelling  (one of the reasons why it is safe). 

(not longer vested)

(17-03-2016, 09:35 PM)Raks Wrote:

(17-03-2016, 08:05 PM)beau Wrote: At the current price of 17 cents, they are trading at 0.88x net cash. This is a business that has 55 years of longevity in Singapore. I'm surprised they're not yet doing any buybacks at the current price.

When it comes to steel most of them (IIRC) have high cash. I used to calculate their current asset based on 20%,50% discount on receivables and they would still have current asset > total liabilities. 

However, I got a feeling that the "cash" they have is behaving more like long term asset than current asset. The stockist mode of operation probably required a lot of liquid cash. Cash is like the "plant and equipment" for them to do business. Therefore, this cash horde is not for capex, buybacks or special dividend. Which is why I didn't get too excited with their net asset.  

Maybe you could look at whether there's any director buying or not to understand how confident they are. 

It is a conservative company with consistent dividends. Be cautious and one could pilot a ship for ten thousand years 小心驶得万年船. You will be safe on this ship but you might not like the speed  it is travelling  (one of the reasons why it is safe). 

(not longer vested)

Thanks for the analysis. Perhaps the reason why AE has a large cash holding is indeed due to the nature of its industry. But maybe a more pertinent question is whether it is rational or not to trade below their net cash value in the first place. I don't believe there is ever a scenario that can warrant that, except for when the cash is fraudulent.

beau : Whilst the high cash level gives reassurance that the company won't go bankrupt during bad times, need to keep in mind inventories are at very low levels now. Steel stocking is an inventory intensive business, the company will easily need 40-50 million to ramp up inventories if business improves to the level it was in 2011 where inventory levels were in the 60+ million range. Current inventories are at 17m+ level for comparison.

GFG : If you look at the shareholdings you can see the Lee family owns 38+% of the company so actually there is no way you could buy up the company at this price. And due to the super low liquidity and free float(78% owned by the top 20 holders who been holding god knows how long), any accumulation will just make the price gap up to 30 cents at least easily. Any takeover would definitely have to be a good premium to NAV of 27c. Check out PEC and Compact metal also both below net cash.

(17-03-2016, 09:54 PM)BlueKelah Wrote: And due to the super low liquidity and free float(78% owned by the top 20 holders who been holding god knows how long), any accumulation will just make the price gap up to 30 cents at least easily. 

Can you elaborate a little more on this? How do you come up with 30 cents?

(18-03-2016, 12:04 AM)beau Wrote:

(17-03-2016, 09:54 PM)BlueKelah Wrote: And due to the super low liquidity and free float(78% owned by the top 20 holders who been holding god knows how long), any accumulation will just make the price gap up to 30 cents at least easily. 

Can you elaborate a little more on this? How do you come up with 30 cents?

If u look at yesterday 200 lots move the price 1cent, to buy lets say 2000lots should easily push the price up 10 cents or more. Look at the sell queue, not many lots for sale.

sent from my Galaxy Tab S

(17-03-2016, 09:46 PM)beau Wrote: But maybe a more pertinent question is whether it is rational or not to trade below their net cash value in the first place. I don't believe there is ever a scenario that can warrant that, except for when the cash is fraudulent.

"Markets can remain irrational longer than you can remain solvent" - Keynes

Their Inventory value is much lower now compared to 3 to 4 years ago. That doesn't mean their physical inventory has reduced of similar magnitude. 

This reduction is likely due to the much lower commodity price. Prices of steel materials have drastically dropped by 40% to 60%.

(18-03-2016, 10:11 PM)retired1again Wrote: Their Inventory value is much lower now compared to 3 to 4 years ago. That doesn't mean their physical inventory has reduced of similar magnitude. 

This reduction is likely due to the much lower commodity price. Prices of steel materials have drastically dropped by 40% to 60%.

you have a point there. according to latest quarterly

[Inventories (measuredonaweightedaveragecostbasis)asat31December2015 decreased to S$17.0million from S$38.9millionattheendofDecember2014,duetothewrite-downinthevalueofsteelinventory and the alignmentof stock levels to prevailing market conditions.]

However of the 21.9m decrease, Inventories written down was 9.81m so the other 12m+ would be realignment of stock levels.

So in any case if business picks up again, it will be hard to calculate exactly but for sure a substantial portion of the cash will be needed for ramping up the business.