HupSteel

[BlueKelah]

Have to keep in mind core competency and business has been in steel market all along, besides to go into RE business might be daft as interest rates can only rise from now on and for a sector at its highs not so long ago, downside risk is very big.

Hupsteel mgt has also been conservative bunch historically, they probably just wait till next steel upcycle to profit. Cash balance much of will be used for inventory as they ramp up.

The cash and re just form a base to allow value investors to sleep better at night knowing solid local assets are there.

Still prefer aeh, trading almost at cash value now with minimal losses as they slowly wait out this downturn..

-v-

sent from my Galaxy Tab S

[BlueDogMeow]

That is true...but they have has the RE for a very long time and renting it out...so I believe the risk of them doing something spectacularly stupid is mitigated.

It is true AEH has a much higher cash balance...but again...while the risk adjusted returns will be decent...the long term CAGR is not attractive enough for me.

My key assumption is that HupSteel and AEH will not be seeing a lot of greens for a very long time. Most of their returns come from an unprecedented boom in the shipbuilding and deepwater drilling industry. We now have a supply glut in shipping...and supply gluts in something like shipping can take decades to clear because of the front loaded CAPEX and long life. And deepwater drilling is extremely uneconomical...

So for AEH...the right way to look at this company is via a finite DDM...the company slowly dividend-ing out its business via a slow liquidation. Using a 4% discount rate, which is only 1% above the 30 years yield, the value of this business is only $0.22 or a 10% upside. Hardly interesting. I believe AEH should have a 5%-6% discount rate because AEH has no plans to shift away from steel but HupSteel does, and AEH has a more operationally levered business model...which translate to a $0.18 - $0.20 value...which implies AEH is fairly valued. I have not even talked about obsolescence.

HupSteel on the other hand has explicitly outlined the fact that the company is shifting of steel. And HupSteel has a very valuable RE portfolio, which is understated on two levels, valuation AND the fact that there are a lot of massively underutilized operational properties.

[BlueDogMeow]

You still get a nice 5%-6% IRR from AEH...but with HupSteel...you get the same 5%-6% IRR with a free RE and its related rental income which could boost dividend by ~50% easy, pushing up the IRR to 7.5%-9%.

Buying a company at cash is not all that great if you will only gain access to the cash over 20 years and have to bear the risk of cash burn and management stupidity.

[brattzz]

don't think they will sell the freehold REs, rather, they will just rent out and bleed out slowly, REITS is a possibility.

[ianphoon]

Bluedogmeow has a point abt the RE of hupsteel. Thats what makes it different from AEH. Both have lots of cash and v little debt.
The big difference is hupsteel has lots of valuable freehold ppties and excess leasehold industrial space which AEH doesnt have.
Probably we can attend the agm and ask the management more.

[Clement]

real estate...it is stated in the 2013/2014 and recent announcement. this is conjecture...but I believe it is possible this company is attempting to transform itself to a debt laded RE, at least that is what I would do.

The company has valuable real estate valued at ~$84 million, which by the way I think is undervalued based on my own 3rd party review, but yet has a huge cash balance. I would use the value of the real estate as collateral and the existing cash balance to fuel an RE acquisition spree. Assuming a 50% LTV, the company can purchase up to $200m in RE.

Assuming the company is able to continue liquidating its WC and sell down its operating properties because there is no steel business to operate, I believe the company can add another $150m in RE.

So what we have is a company that has $430m in RE, and $215m in secured debt. If the company is able to draw a 6% yield on a 3.5% I/R expense, the company will generate $18.75m in pre tax returns. if it converts to a reits structure and trade at an 8% yield...that is a $240m in equity value...or a 140% upside.

Of course....this is conjecture...but it represents the upside potential the company has by implementing such an easy strategy.

Hi,

In the computations above, are you not factoring in the operating costs of managing the assumed property business?

[Dividend Hermit]

http://infopub.sgx.com/FileOpen/ResultsQ...eID=367210

0.1c dividend declared.

"The Group is not optimistic of returning to profitability in the next reporting quarter."

Thought I see wrongly. Really is 0.1 cent dividends.
Well, better than not giving any to the loyal shareholders. But opportunity cost will be much higher now.

[nitro]

Extracted from 4QFY15 & FY report

The new building at 6 Kim Chuan has received its temporary occupation permit on 24 August 2015. While the property measures imposed by the government and slowing economy will likely affect the take up rate of the units in the near term, the newly completed building will still serve as a new income stream to the Group.


Seems like the possibility of strata-sale is low now and more towards recurring rental

[Curiousparty]

May I check how much will the recurring income (after deducting for expenses) add to EPS?tks.

[BlueDogMeow]

Hi bluedogmeow, could you explain what you mean by transformative business? Means steel to other business? What business, any thoughts?
Thanks.

real estate...it is stated in the 2013/2014 and recent announcement. this is conjecture...but I believe it is possible this company is attempting to transform itself to a debt laded RE, at least that is what I would do.

The company has valuable real estate valued at ~$84 million, which by the way I think is undervalued based on my own 3rd party review, but yet has a huge cash balance. I would use the value of the real estate as collateral and the existing cash balance to fuel an RE acquisition spree. Assuming a 50% LTV, the company can purchase up to $200m in RE.

Assuming the company is able to continue liquidating its WC and sell down its operating properties because there is no steel business to operate, I believe the company can add another $150m in RE.

So what we have is a company that has $430m in RE, and $215m in secured debt. If the company is able to draw a 6% yield on a 3.5% I/R expense, the company will generate $18.75m in pre tax returns. if it converts to a reits structure and trade at an 8% yield...that is a $240m in equity value...or a 140% upside.

Of course....this is conjecture...but it represents the upside potential the company has by implementing such an easy strategy.

Hi,

In the computations above, are you not factoring in the operating costs of managing the assumed property business?

I am assuming triple net.