Lee Metal -- nice + steady

Missed this one which was highlighted by 'newbiestock':

LEE METAL: "12% dividend yield, low PE of 4...."

www.nextinsight.net/index.php/story-arch...d-yield-low-pe-of-4q

Lee Metal is giving a special dividend. total final div is 1.5 ct. Interim was 1.0 ct.

It has proven to be a nice dividend yield stock. Pity I missed it when it was 21 cents. Now 30.5 cents.

I was looking steel stockists companies when I look and saw this company.

Newbiestock had it good when it recommended it at 21 cents, it is at 38 cents now. I believe the story is still intact, and the price is a fair value even now.

Mainly:

Austville EC 100% sold, to TOP in 2014, expected to add 5.2 cents to EPS, almost the whole of 2012 earnings

Construction boom to last till 2015 earliest.

Anyone interested to read more about the nitty gritty stuff, here is what I posted at valuebuddies:

---

Hi buddies,

Anyone looking at this? was comparing the steel stockists companies when I stumble upon this, look attractive. Here is the "story"

1) 1-off bonanza from Austville EC in 2014
They have a 35% stake in JV with united-engineer, the estimated EPS from this venture alone is expected to be 5.2 cents, almost the whole of 2012 earnings.

2) While global steel market languishes, and its merchandising and trading arm continue to deteriorates with the general markets, its fabrication and manufacturing arm that supply mainly to the construction sector of SIngapore is booming, and is offsetting the poor performance of its trading arm.

3) Its Fabrication and manufacturing arm has a record year in 2012 of 30,064,000 profits

2011, 2010, 2009, 2008, 2007
19m, 22m, 27m, 22m, 4m

Its records appear checkered, and margins ranges from 8% to 11%, but

They are pending JTC approval (by 30 oct)to confirm purchases of 1 Tuas Av8 and 3 Tuas Ave 8, the 2 buildings beside their existing facility to expand their manufacturing arm , this action speaks volume of their outlook of the business. Also 1H turnover for the segment is already 192.6m comparable to 361.6 m for the whole of 2012. Demand is still strong, and growing.

4)HDB will taper off its supply to 15k from 2016 onwards, and the MRT lines will keep the industry busy till 2020.

Land use plan Singapore quote MND plan to add 700,000 housing till 2030 to accommodate 6.9 million, granted it is just a guideline, but the sector does not seem to be going to sharp correction anytime soon.

5) Trading arm is in doldrums, but the lower it is, the less chances for this segment to spring nasty surprises, and this segment is of low margin, so any growth or deterioration will not significantly affect the bottom line.

However, China has talk about consolidating the production of steel mills, (BUt iron ore restocking and import is still at record high for recent years), US housing is showing signs of recovery, Europe is stabilizing.
All these crystal glass gazing might be meaningless, but given steel is a commodity indispensable in urbanization, the better the economic acivities, the higher the demand for steel.

6) Unbroken records of dividends and profitability since listing in 2001. Payout ratio is 30-50%, except in 2005, where payout is only 10%

valuation:
At current prices,
you are paying a premium above NAV
you are paying a forecast PE 6x 2013 and 3-4 times 2014 earnings
Projected Dividend yield of at least 7% in 2013 and 2014

Risks
1) High gearing and expected to continue to increase till to their expansions. Gross gearing is 1.5X of equity due to its high inventory
2) Inventory level is higher than equity (175 million compared to equity of 148 million)

As with the case of HG metals, when crisis hits and heavy inventory writedown + high gearing is a recipe for disaster.

I am comfortable with the risk I am taking, since Steel price is some 30% off the peak, and company is generating FCF for most of the years. Net gearing with its FD included will be about 0.5

If you are interested, you can read about my brief comparison of LEE metals with other steel company at
sillyinvestor.wordpress.com/2013/...y-summary/

Or a detailed write up from newbiestock from nextinsight in early 2012

www.nextinsight.net/index.php/story-arch...d-yield-low-pe-of-4q

Nice. Finally a forum for Lee Metal.

It's a good dividend stock.

But I hv taken a profit a couple of months ago as it has hit the capital gains I need.

An write-up of Lee metals from my blog:

Lee metals: Year of record earnings and record dividend payout

---

Lee metals is the only counter thus far that provide results that I expected.

Lippomall and Sabana are both disappointment.

Dividends increase from 2.5 cents to 3.5 cents.

At closing price of 39 cents, it is giving a yield of 8.9%. Beating most reits or trusts.

Is it sustainable?

Yes, IMHO, but only for 1 more year, as earnings from Austville will be realised this year. The EPS of 5.2 cents from that project itself (for calculation, see sillyinvestor.wordpress.com/2013/10/30/p...ing-future-earnings/ ), should allow payment of DPS of 3.5 cents, a perhaps some “special” dividends. 2015 onwards, it will have to depend on operations, but dividends of 2 cents, is normal dividends, which I believe the management can manage.

Take away the 1 off-gain of amost 3 million from disposal of subsidiary, Lee metals will still be earning 37 mio net profits, still a record earnings.

With the higher EPS, the company has been fair to shareholder, with payout of 40%, which to me, is not demanding on the company finances. (Lee metals have payout of 30% to 50%, if we do include anormal years of 10% and 70%, which happen only once in their decade history )

FCF is 22 million, payout is 16.4 million. No strain on finances. CCC has increased to 114 days, the second highest in a decade. As for ROE, ROA, ROIC, inventory and receivables t/o, there is no red flag. Most are stable.

So what is the catch?

After 2015, competition is expected to increase, and supply are expected to exceed demand. That is the outlook of BRC asia, an competitor of Lee metals. Lee metals also expect competition to increase, but they are still expanding.

Lee metals have a good 10 year track record, I will enjoy the ride first. Given that it is so thinly traded, it doesn’t take much for the share price to breakout to the upside or downside.

Lee metals will recognize revenue from Austville residences (TOP 27 May) in this coming quarter. Hoping for a special intern dividend.

Calculation of Lee metal share of EPS from austville is 5.2 cents. How I calculate that can be found at
sillyinvestor.wordpress.com/2013/10/30/p...ing-future-earnings/

A reader commented my estimate is too optimistic. I used 20% Net margin, if it is 15%, then it's 3.9 cents EPS. Still enough to declare some special dividend of 1 cent perhaps?