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(12-02-2011, 06:53 PM)redcorolla95 Wrote: Industry is quite cyclical. There IPO coincided at a time of near (or at) record orders for the industry, even then, there was a roughly even split between project and maintenance revenues. Also projects have generally higher margins than maintenance.
Generally, unless you've very strong reasons to believe that we're seeing lots of orders coming up, my preference is to buy a company in a cyclical industry near a trough valuation. Now if you compare the current PB vs when they IPO-ed, it's not obvious that we're near a trough.
Plus points from #3.
Fully agree that it is time to pay attention to this potential multi bagger.
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Just received a statement from CDP that my Hai Leck shares were borrowed by someone, total 24,000 shares.
Rather surprised someone short this illiquid counter also.
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First time company buy back its share today.
100,000 shares at 0.26.
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(07-02-2011, 02:41 PM)dydx Wrote: (11-11-2010, 12:01 PM)dydx Wrote: We should not assume that project profitability in the O&G space will remain good forever, as the oil majors now have many choices (Rotary, Hiap Seng, PEC, etc.), and they will 'squeeze' as they now can see the profits of their service providers. Take a look at the rather disappointing Q2-FY11 (ending 31Mar11) results of Hiap Seng just released......
http://info.sgx.com/webcoranncatth.nsf/V...700180E4B/$file/HSELQ2FY2011_announcement.pdf?openelement
The BIG SQUEEZE by Shell, Exxon Mobil and the likes, may have already started!
A "negative" Profit Guidance announcement (dated 2Feb11) by Hiap Seng has caused a massive $0.07 (or 10.9%) loss so far in the share price today......
http://info.sgx.com/webcoranncatth.nsf/V...A0033A1AE/$file/Profit_guidance_3QFY2011.pdf?openelement
The announcement forewarns that the company is expected to report a net loss in Q3-FY11.
I sure hope that Hai Leck and other service providers operating in the O&G space would not have to suffer a similar fate.
dydx,
I get the feeling that you are not seeing favorable near-term economic climate for the O&G sector.
How would that affect the steel stockist that derives more than half of their revenue from this sector? You know the name.
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cif5000,
When an established contractor or service provider (like Keppel or Rotary) in the O&G sector gets a new major contract, of course it is reasonable to expect the company to make a decent profit from it. However, we should bear in mind that whatever real profit - as opposed to accounting profit based on the usual "percentage of completion" accounting method - will be earned only upon the successful completion of the underlying work and the contract, which will usually take 2 to 3 years at the least. We should also bear in mind that by its nature, the O&G sector is highly cyclical, where a period of boom is followed immediately by a period of depression in demand and prices. So it is unlikely that an O&G contractor or service provider should command high, steady and rising market or investment value over the longer term.
Of course, one can always find a few exceptionally good and well-managed companies even in a cyclical industry, or for that matter also in the steel stockist trade.
By looking at the local listed steel stockists, it is quite clear that a few seem to be able to make a profit - even though the profit does fluctuate a lot over time - year after year. I guess this is mainly due to their smart and prudent management. I should add that apart from during short periods of strong demand for steel products from the O&G and other sectors, steel stockists are able to earn good/super profits during periods of rising prices - that is if they have made early and the right bets in stocking up inventory at lower prices. It is my understanding that for big O&G construction projects, for cost-saving reason most big contractors will choose to buy the bulk of the required steel and other materials directly from steel mills and other suppliers overseas, and use the local steel stockists mostly for the balance and smaller requirements.
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I think I wasn't clear in my question.
You pointed out in Hai Leck thread that the O&G sector is experiencing a "squeeze" and yet in Sin Ghee Huat thread, the stockist that I was referring to, you mentioned that "demand is poised to increase further". How can that be?
http://www.valuebuddies.com/thread-95-po...tml#pid357
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cif5000,
Obviously, we are and should be talking about different businesses here - i.e. a contractor/service provider (i.e. Hiap Seng) in the local O&G sector, vs. a local stainless steel stockist (i.e. Sin Ghee Huat) supplying to various industries including the regional O&G sector. The lower profits in the cases like Hiap Seng and a few other O&G contractors in the most recent quarters are clear indicators that both their business volume and profit margins have fallen partly because of competition.
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16-03-2011, 02:47 PM
(This post was last modified: 16-03-2011, 02:48 PM by cif5000.)
Well, the point is SGH derives more than 50% of their revenue from the O&G sector. Surely, the demand should be in line with that and not "demand is poised to increase further".
Unless you mean the squeeze in O&G is not affecting the stockist that supplies to the contractors whom are having or going to have a reduction in their level of businesses.
I am confused with your opposing views on the 2 companies serving the same industry. One is poised for growth and the other is going downhill.
PS: No vested interest in Hai Leck.
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(16-03-2011, 02:47 PM)cif5000 Wrote: I am confused with your opposing views on the 2 companies serving the same industry. One is poised for growth and the other is going downhill.
PS: No vested interest in Hai Leck.
You should not be confused if you try to look at Hiap Seng and Sin Ghee Huat as in 2 different types of businesses - and indeed they are! - with different direct customers, competitors, and operating characteristics.
Hiap Seng is a one-stop shop service provider of mechanical engineering, plant fabrication and installation and plant maintenance to the oil-and gas, petrochemical and pharmaceutical industries in Singapore, Asia Pacific and other regions. Understandably most major contracts from the O&G majors are subject to competitive bidding. Hiap Seng competes directly with PEC, Rotary and a few others including foreign-owned players. In a competitive bidding situation - i.e. usually the lowest price wins - there is really no certainty that Hiap Seng or any of the other players will get the contract. And even having secured a contract, there is also no certainty that it will turn out to be very profitable. Under the current competitive industry landscape, I guess we can reasonably assume that competition among the existing and any new players will only increase with time.
On the other hand, Sin Ghee Huat is a local specialist stockist and distributor of 304/304L and 316/316L grades of stainless steel products, supplying more than 4,000 items of stainless steel products including pipes and pipe fittings, plates, bars, tubes and flanges, and has a wide customer base from various industries and countries. O&G contractors/ service providers as a group, is only 1 of the many industries the company supplies or sells to. As stainless steel is a useful material, I guess we can reasonably assume that the demand driven by many industries will continue to increase with time, especially during periods of economic expansion and major capex spending.
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