HupSteel

[pianist]

i think it is unlikely to have a healthy eps or earning growth for such company..

[paullow]

i checked out hupsteel pe. indeed this is a legitimate concern. its pe for the past 15yrs can range from 5-80! so its cyclical and quite variable. won't be surprised if next quarters eps next to zero. that's what kept most pple from even looking at it.
its hidden ppty investment is what makes it a value play. huge value waiting to be unlocked. i wonder if the other forumer has come out w the valuation of its other ppties.

[lavue]

a similar bare unit warehouse at 63kim chuan drive 6200sf is going for 6.3m. so i would estimate the freehold land is at least 800psf, making it worth around 26m. the genting lane 8storey building is more prime as it is closer to the city. it has a high plot ratio that it not maximised. the freehold land there is worth at least 20m. these 2plots cld be worth 45m. 2 jalan besar shphse say 3m each. plus shoplets in hoe nam. all in all these freehold assets cld be worth in excess of 50m.
with current market cap of 115m, i wouldn't say its small. it is nearly half of its market cap.

Previously I did the residual valuation for 6 Kim Chuan Drive and conservatively estimated it to be $38m. Allowable PR is already maximised.

Probable selling price for 359 + 365/365A Jalan Besar Road based on Market Comparison Method = $7m. Note that the allowable PR of 3.0 is not maximised.

Probable selling price for #05-04/05/06/07 Hoa Nam Building based on Market Comparison Method very conservatively estimated to be $1.5-1.7m. Note that funds/property investment coys may be willing to pay a slight premium to buy over this bloc of strata units located side by side.

Probable selling price for 38 Genting Lane = $30m.
Comparables are:
15 Lorong Pendek 1005sqm sold for $15m in Oct 2012
50 Macpherson Rd 1350sqm sold for $19m in Apt 2012
1 Tannery Lane 3462sqm sold for $47m in Mar 2012

Altogether, I've (very conservatively) estimated these investment properties to be worth around $75m. These investment properties are currently carried at $14m on their balance sheet.

Cash and cash equivalents ($48m) + Investment properties ($75m) = $123m
Market cap = $119m
At the current price of $0.19, you are essentially getting the steel business (trade and other receivables $44m, inventories $72m, other current assets $0.85m) for free

[paullow]

i am glad someone else also shares my view. so truly at 19c, conservatively speaking, one gets its 70year old steel biz for free. take a look at the recent share buy back at 19.5c. the company itself may feel even at 19.5c, it is heavily undrvalued. the catch is the highly cyclical steel biz.

[lavue]

Was browsing through the investment section of a bookstore and found the explanation for why steel companies, especially those with poorly-performing core businesses, generally trade at a significant discount to their NAV. I shall reproduce the entire relevant paragraph here.

All experienced investors know that earning power exerts a far more potent influence over stock prices than does property value. The worth of a business is measured not by what has been put into it, but by what can be taken out of it. So much is this true that many an unprofitable company sells in the market for less than the working capital alone - less than the liquid assets, which presumably could be readily turned into cash if the business were discontinued. Such companies, and they are by no means rare, are worth more dead than alive. Even cash assets, therefore, are not a dominant factor in market value, unless there are distinct possibilities of a special distribution therefrom. Hence Wall Street's refusal to recognize in full even the increased specie holdings of the Steel Corporation - which to the reader of the balance-sheet must appear like so much added cash in the pockets of its stockholders.

Furthermore, it is troubling to note that Hupsteel has been alluding to property development to shore up falling earnings from as early as 2006.

AR2006: The management constantly reviews the developments of the property market and seeks expert advice on how to better deploy the properties that it holds.

AR2007: The management will constantly evaluate business options relating to these properties that will enhance good shareholder returns.

AR2008: Our properties had generated improved rental income over the previous year. However, the Company will actively review the contributions from its non-core assets and take appropriate action when the opportunity arises.

AR2010: Occupancy rate for Hupsteel’s owned industrial buildings, offices and shop houses remained healthy during FY10. With the recovery in the general economy, valuations of these properties have improved. This would allow Hupsteel to consider alternative options in managing this portfolio of properties.

AR2011: The Group holds a number of industrial properties and continually reviews various strategies to maximize the value of this portfolio of investments. Despite the cooling measures implemented for residential properties, demand for industrial properties is expected to remain stable as long as the local economy continues to grow. The Group will consider all available options closely and may either redevelop and/or dispose some of its properties at the appropriate time and in response to prevailing market conditions to further enhance shareholders’ value.

AR2012: We had reported last year that the Group would be reviewing the various options available on its portfolio of industrial properties. The Group hopes to finalise plans for the development of some of these properties and relevant announcements will be made when ready and in due course.

It reads rather pitifully; almost as if property development is adopted as a measure of last resort to shore up their ailing core business. Will Hupsteel finally announce property development plans? Your guess is as good as mine. While I'm fairly confident of the accuracy of my valuations, these new discoveries are a good reminder for myself to reassess my investment thesis.

[Bibi]

I have a silly question. On page 56 of the 2012 AR, it states "As at 30 June 2012, the fair value of investment properties is $47,200,000 as determined by independent professional valuers, using the Market Comparison Method". And the investment properties are those freehold ones as stated by lavue.

So the investment properties have been revalued on 30 June 2012 to be $47 mil? Or just some of the freehold investment properties were revalued on 30 June 2012 while some revalued on Aug 1992?

Assets aside, i crunch its financial numbers from 2002 to 2012. Base on 2012 earnings, its PE is 16 at 19 cents. And with its dismal 1Q2013 results, assuming, full year 2013 comes in at $1.7mil, its PE will become 84 at 19 cents. Base on earnings, Hupsteel is very expensive at 19 cents. No wonder it kept being sell down when the price is above 19 cents.

The positive is, despite such dismay 1Q2013 results, it got sold down to only 0.181 with very very small volume. I think as long as subsequent quarters dont result in large losses causing a drain to its cash/book value, Hupsteel is worth a look.

---

It reads rather pitifully; almost as if property development is adopted as a measure of last resort to shore up their ailing core business.

I am not surprise they will sell the investment properties one at a time to sustain their steel business. After all, its 60 years old and has sentimental value to the Lim family. If sell steel business, the Lim's whose knowledge is in steel, can go eat grass liao.

[paullow]

i wouldn't call the biz ailing. in my opinion, its just cyclical. if u look the its 15year histoy. a few ys after the 1997 afc the eps became negative for s ceveral quvarters in ard 2000. at one time in 2007, its eps shot up to 7c. at it current share price, some 40% of it is in cash. and with 50-75m of value to be unlocked. at sti 3200, personally i find this a value buy. though the cyclical steel biz might cause concern esp with dismal eps last reported. to ne, this provides an excellent buying opportunity as what some forumers already pointed out correctly, each time price goes above 19c, some pple woukd make sell off. i think the trick to this counter is really to think long term. going bust with so much fixed assets and cash and literally no debt is highly unlikely.

to me, hupsteel downside is guarded by its fixed assets and to some extent its cash though the cash nay fluctuate. and now its its price kept down by weak eps. upside potential is immense.

vested- so views may be biased.

[Underdogger]

personally, i like to go for companies where NAV is made up by a huge proportion of cash. Do check out New Toyo and gives me your views.

Once the remaining portion of SAH winds down, about 20 cents of the current share price (26.5 cents) will be solid cash. Well, this is about 75%. Well, would be grateful if anyone could correct me if I am wrong.

TKs.

i wouldn't call the biz ailing. in my opinion, its just cyclical. if u look the its 15year histoy. a few ys after the 1997 afc the eps became negative for s ceveral quvarters in ard 2000. at one time in 2007, its eps shot up to 7c. at it current share price, some 40% of it is in cash. and with 50-75m of value to be unlocked. at sti 3200, personally i find this a value buy. though the cyclical steel biz might cause concern esp with dismal eps last reported. to ne, this provides an excellent buying opportunity as what some forumers already pointed out correctly, each time price goes above 19c, some pple woukd make sell off. i think the trick to this counter is really to think long term. going bust with so much fixed assets and cash and literally no debt is highly unlikely.

to me, hupsteel downside is guarded by its fixed assets and to some extent its cash though the cash nay fluctuate. and now its its price kept down by weak eps. upside potential is immense.

vested- so views may be biased.

[lavue]

To reply Bibi, the investment properties are carried at $14m on their balance sheet. But I suppose the company directors sought an independent valuation to gauge the open market value of their investment properties, which is determined to be $47.2m as of June 2012.

However, these independent valuations are probably done on an "as-is" basis, whereas mine is done on the assumption of them maximising the highest-and-best-use of their site, i.e. building to the highest GFA as allowed by the MP2008.

Also, in the 6 months since that last valuation exercise, the market has moved. So a revaluation ought to be conducted as often as every 3 months to re-determine the current market value.

[paullow]

[quote='Underdogger' pid='39608' dateline='1357657260']
personally, i like to go for companies where NAV is made up by a huge proportion of cash. Do check out New Toyo and gives me your views.

Once the remaining portion of SAH winds down, about 20 cents of the current share price (26.5 cents) will be solid cash. Well, this is about 75%. Well, would be grateful if anyone could correct me if I am wrong.

TKs.


Hi dogger,

cash is always good. but too much of it in proportion to the market cap means value stuck there. Will need to assess the management whether they are the sort who would use their cash to capture opportunities or just leave it lying there. if they return some to shareholders, good. but do take note, share price will likely to drop by that corresponding amount once that happens. whether after that the share price returns back to its pre CD price is hard to say.

so i think need to see the track record of the management style.

that's my view.

actually I was deciding whether to buy taisin or new toyo 2 yr ago. I made the decision to go for taisin because like NT, it was similarly undervalued, but pe low and dividends consistently ard 8%. there are other points why i chose taisin then but the once mentioned are the main points.

in my view any company with all three : low pb, low pe and high yield or has something to unlock is worth a look. cash++ is a bonus