HupSteel

[brattzz]

Whooo hooo! yeah! it's a family biz afterall!

Demand for structural steel products, pipes and fittings is not likely to pick up during the next few
quarters and competition will remain as intense during the period. Supply of these products and their
prices are expected to remain stable in the near term.
With Indonesia having recently elected its new president, the Group hopes that new economic policies
will spur activities and thereby increase demand for structural steel products.
The Group will continue its focus on maintaining stable gross profit margin in the near term and try to
look out for more project sales to boost revenue. It will seek to keep its inventories at an optimal level
and stay responsive to the changing needs of the markets.
Construction at its 6 Kim Chuan site is progressing smoothly and is expected to complete according to
schedule. The Group will be selecting suitable partners to market the property in a timely manner.

[ianphoon]

yes. its a fam biz. but w 1c div coming, price did not move upwards yet we can see huge seller of 1m shares queueing almost on daily basis at 21c.
is some big shareholder paring his stakes? is dividend yield 5% not good enough? fixed asset redevpmt shd be physically gaining increased visibility day after dayy.

[brattzz]

yes. its a fam biz. but w 1c div coming, price did not move upwards yet we can see huge seller of 1m shares queueing almost on daily basis at 21c.
is some big shareholder paring his stakes? is dividend yield 5% not good enough? fixed asset redevpmt shd be physically gaining increased visibility day after dayy.

Today was +1m shares buyer queuing to buy in 20cts...

Don't think soo much, company is on track and conservative!

[BlueKelah]

Will the price of iron ore affect this counter? That is my main concern, if so there could be better buying opportunity at a lower price.

Vested

via Xperia Z1 with Android 4.4.4 running tapatalk.

[ianphoon]

imo, the iron ore price is not a concern which many think it is. being stockist, its a price taker and stores and sells according to demand, and demand of the industry which it supplies is the prime determinant. it has no control over iron ore prices.

[brattzz]

imo, the iron ore price is not a concern which many think it is. being stockist, its a price taker and stores and sells according to demand, and demand of the industry which it supplies is the prime determinant. it has no control over iron ore prices.

Good observation, i agreed! However, there's a little extra we can/will have to take into consideration, which is the management acumen of the steel biz, and eventually, the properties biz...

This is afterall, a conservative family biz!

[ianphoon]

[quote='ianphoon' pid='93665' dateline='1409971904']
imo, the iron ore price is not a concern which many think it is. being stockist, its a price taker and stores and sells according to demand, and demand of the industry which it supplies is the prime determinant. it has no control over iron ore prices.

Good observation, i agreed! However, there's a little extra we can/will have to take into consideration, which is the management acumen of the steel biz, and eventually, the properties




Acumen I believe so. Look at the cash level. This mirrors asiaent. It's quite obvious that they are on "standby" mode to capture any sudden increase in demand in the similar industries they are supplying. Both have habit of not using leverage. So far demand is still weak which they can do little about.
Being stockists, they need to quick and responsive to meet the needs of their end users, yet not burden themselves with lots of goods.
Iron ore prices low also don't benefit them cos they won't want burden of unnecessary storage. Remember cash is still king.
Iron ore prices high also doesn't mean profit fat, since the former and high end user demand might not occur together and this also depends on purchase price.
So iron ore prices cannot predict hupsteel or asiaent share prices.

Just two cents of my tots.

[CY09]

Revenue = 7690sqm x 10.76 x efficiency ratio (say 80%) x 762 PSF (based on 2013 freehold rate) = $50 mil.
(basis: Factory units with 60-year lease and freehold tenure were transacted at an average of $441 psf and $762 psf, respectively, reflecting increases of 5 per cent and 8.5 per cent from 2012. )

Total cost of land ($zero) + construction = $1650 (PSM) x 7690sqm x 1.2 (20% buffer for rising labor cost, cost overrun)= $15 mil
[Hupsteel is not in the business of construction. there might be cost overrun, etc]

NAV created from KC project = $35 mil / 616 mil = 5.7 cents.

The NAV (or revaluation gain) created from KC project is only a meager 5.7 cents, after waiting for a miserable 2-3 years

How many " 5.7 cents NAV gain" can we create from all the freehold properties that Hupsteel has and how long do we have to wait for all to be redeveloped?

we are looking at the RATE of NAV creation, relative to the existing NAV


*****************

The Board of Directors of Hupsteel Limited (the "Company" and together with its subsidiaries, the
“Group”) is pleased to announce that the Group has entered into an agreement (“the Building
Agreement”) to redevelop its freehold property at 6 Kim Chuan Drive (the “Property”) into a 7-storey
industrial building with an elevated car park having a gross floor area of 7,690 square metres.

I will like to point a possible error in your valuation of Kim Chuan. According to MP 2014, its zoned as business 2, which fetches about $4365psm or $405 psf. I believe your valuation $762 is based on valuation parameters of zoning Business 1 which fetches a higher value. Therefore assuming total GFA of 7960*efficiency of 95%*$4365 psm* 1.2 (freehold lease). The valuation of Hupsteel's development at 6 Kim Chuan is $39.6M. therefore revaluation gain from KC project is only about 24.6M.

Rental of Biz 2 units is $22.55 psm. Assuming 90% occupancy, annual cash flow from 6 KC development is 0.28 cents per share.
Rental of Biz 1 units is $23.94 psm
All these information are obtained from JTC figures.

I have done valuation for its genting lane property too which is zoned B1. At total GFA of 4,040 sq m @ $7,453psm, its worth $34.3M. Both valuations use the market comparable methodology.

Please take note the industrial sector in Singapore is on a decline and for VB members who wishes to take a conservative approach, please take off 10%. This is because i had assigned assumed freehold land as 20% more valuable than leasehold tenures too.

[Curiousparty]

Tks very much

Much appreciated

Yes, industrial segment is on the decline. Not sure how is Hupsteel going to compete with much bigger entities such as JTC and Boustead.

Revenue = 7690sqm x 10.76 x efficiency ratio (say 80%) x 762 PSF (based on 2013 freehold rate) = $50 mil.
(basis: Factory units with 60-year lease and freehold tenure were transacted at an average of $441 psf and $762 psf, respectively, reflecting increases of 5 per cent and 8.5 per cent from 2012. )

Total cost of land ($zero) + construction = $1650 (PSM) x 7690sqm x 1.2 (20% buffer for rising labor cost, cost overrun)= $15 mil
[Hupsteel is not in the business of construction. there might be cost overrun, etc]

NAV created from KC project = $35 mil / 616 mil = 5.7 cents.

The NAV (or revaluation gain) created from KC project is only a meager 5.7 cents, after waiting for a miserable 2-3 years

How many " 5.7 cents NAV gain" can we create from all the freehold properties that Hupsteel has and how long do we have to wait for all to be redeveloped?

we are looking at the RATE of NAV creation, relative to the existing NAV


*****************

The Board of Directors of Hupsteel Limited (the "Company" and together with its subsidiaries, the
“Group”) is pleased to announce that the Group has entered into an agreement (“the Building
Agreement”) to redevelop its freehold property at 6 Kim Chuan Drive (the “Property”) into a 7-storey
industrial building with an elevated car park having a gross floor area of 7,690 square metres.

I will like to point a possible error in your valuation of Kim Chuan. According to MP 2014, its zoned as business 2, which fetches about $4365psm or $405 psf. I believe your valuation $762 is based on valuation parameters of zoning Business 1 which fetches a higher value. Therefore assuming total GFA of 7960*efficiency of 95%*$4365 psm* 1.2 (freehold lease). The valuation of Hupsteel's development at 6 Kim Chuan is $39.6M. therefore revaluation gain from KC project is only about 24.6M.

Rental of Biz 2 units is $22.55 psm. Assuming 90% occupancy, annual cash flow from 6 KC development is 0.28 cents per share.
Rental of Biz 1 units is $23.94 psm
All these information are obtained from JTC figures.

I have done valuation for its genting lane property too which is zoned B1. At total GFA of 4,040 sq m @ $7,453psm, its worth $34.3M. Both valuations use the market comparable methodology.

Please take note the industrial sector in Singapore is on a decline and for VB members who wishes to take a conservative approach, please take off 10%. This is because i had assigned assumed freehold land as 20% more valuable than leasehold tenures too.

[valuebuddies]

I am trying to convince myself that Hupsteel is a gem, but I still could not believe so unless the near-dead steel business is recovered. Some of the buddies here are simply too attached to the fact that the properties are significantly undervalued, but have someone trying to work out how much additional rental income would it get post-redevelopment?

Assuming that both Kim Chuan and Genting Lane properties are redeveloped, the GFA would be approximately 120k sqft based on the information available on its AR. Assume that NLA is 85% of GFA, then it would be 100k sqft. Assuming 100% occupancy and at better rental rate of S$3.00 psf, gross rental income per year would be S$3.6M. Net of tax and operating expenses, S$2.5M left? This is the best case scenario without taking into consideration of the lost of income from the existing properties from Kim Chuan and Genting Lane.

In fact, S$2.5M is merely 0.4c EPS.

During good years, steel business alone could generate more than 2c EPS, during the bad years like 2013, just 0.4c EPS.

For me, Hupsteel is a buy only if it could turn around the steel business or if it is willing to dispose the properties to realise the values.