Management Online Q&A With Investors
Dear Investors,
Thank you very much for the questions and the opportunity for us to respond. We hope you have a better understanding of our business through this online exchange. Your questions will be reposted in blue followed by our replies in black.
Kind regards,
The Management Team
Asia Enterprises Holding Limited
Dear S Yong, you wrote:
1. What are the future growth and direction of the company? Does the board have any plan to double grow the company in the next three years time?
We believe the Group"s future prospects are positive. As a "One-Stop" distributor of a wide range of steel products, Asia Enterprises plays a critical role as a vital intermediary to bridge the time gap between demand and supply from industrial end-users and steel mills respectively.
We believe the rapid industrialization and infrastructural growth in Asia"s economies will underpin demand for steel in the coming months of 2006. In particular, our growth will continue to be driven by the Group"s strong exposure to customers in the buoyant shipbuilding and marine-related sectors, many of which have order books that will keep them busy up till 2009.
In the near term, the Group"s strategy is to grow organically by broadening our regional presence, especially into new territories within Asia that promise potential opportunities for growth. We also intend to continue widening our product range to include more high-value steel products with the aim of enhancing our position as a "One-Stop" distributor to industrial end-users.
2.The company pays good dividend so far, how do you propose to maintain such dividend payment? Would you like to announce a dividend policy? Despite good dividend, share price still low, could this be attributed to the lack of a future growth?
We will assess our Group"s financial performance and cash requirements at the end of the financial year to decide on the dividend payout. At present, we do not have any plans to set a formal dividend policy as the Group is continuing to commit resources to the expansion of its operations.
The Group believes in rewarding our shareholders for their belief and commitment to the Group. In the past thirty over years, we have consistently paid out dividends every year.
Although we do not have a formal dividend policy, we would like to carry on this practice in the future.
We believe the Group has exciting growth opportunities. We will endeavour to further enhance shareholder"s value by leveraging on our established market position and sound financial position to strengthen our foothold within the steel distribution segment.
Dear Hui Lin, you wrote:
I am pleased with the performance of Asia Enterprise and welcome the opportunity to seek clarification from you.
1. I infer from the P/L statement that Asia Beni made $317K in H1 and $125K in H2 of 2005, and lost $157k in H1 of 2006. Can you comment on this deterioriating trend.
Our subsidiary, Asia Beni, provides steel processing services to customers in the manufacturing and precision metal stamping industries, predominantly in Singapore. It provides just-in-time deliveries, hence proximity to our customers is necessary. Due to high operating costs of production in Singapore, many of these companies have moved their operations to lower-cost countries. This happened most prominently between 2002 to 2003. This has somewhat stabilized in the last 2 years. However, the soft steel prices from 2H2005 till 1Q2006 has affected its profitability.
2. Do you have plans for the investment in Liyang Intercontinental Steel Industries? Will it continue to be dormant for a while?
Liyang Intercontinental Steel Industries was set up to hold the land use rights of a piece of industrial land that the Group owns in Liyang. The company will remain dormant as we continue to explore feasible projects.
3. Do you keep an office in Shenton House? Is it not more cost efficient to operate from elsewhere?
In 1996, our headquarters was relocated from Shenton House to our current premise at 3 Pioneer Sector Walk. The office in Shenton House is currently leased to a third party at a fixed rental fee per month.
Dear Kelvin, you wrote:
Hi,
Thank you for organising this Q&A.
My Qs are as follows:
1. The profitability of the Company seems to depend on the price trend of steel. Are there any plans to expand the Company"s business in other areas such that the business will be less dependent on steel price movement?
We play a critical role as a vital intermediary to breach the time gap between demand and supply from industrial end-users and steel mills respectively. We focus on selling directly to industrial end-users. We establish close contacts with our customers and understand their needs and requirements for steel. This helps us to make sound steel purchasing decisions. Hence, as a steel distributor, our profitability is not solely affected by fluctuations in global steel prices but also the underlying demand from our customers. Through our 30 over years of experience, we have developed good business acumen on international steel trends and demand/supply conditions. With the demand for steel continuing to be strong especially in shipbuilding and marine related sectors, our business will remain viable and relevant.
Though the steel industry has experienced more volatility of late, we believe that our management has the expertise and experience to mitigate the risks arising from fluctuations in steel prices. Moving forward we will continue to leverage on our expertise and industrial knowledge to strengthen our position as a quality supplier of steel to regional industrial end-users.
2. Noted that there are acquisition plans. Can you pls elaborate on the size, scope and area of acquisition the company is looking at?
Our current focus is to expand through organic growth, which would include expanding our product range as well as increasing our geographical coverage within Asia. We view acquisitions as part of our longer term growth strategy. We intend to explore the potential of suitable and synergistic acquisitions that will enable us to enhance our growth profile.
3. In your outlook statement under para 10 of your results announcement, you cited May Issue of the Mining Journal. Is that information outdated given that China is trying to cool its economy, esp in the area of property development? Are there any more up-to-date references? If you are aware of any reliable website that provides information on steel prices trend, would appreciate it if you can post it here.
China has indeed adopted several measures to cool its economy since 2004. Nevertheless its economy has still grown at a fast pace of 11.3 per cent in the second quarter of this year, as reported recently in The Straits Times on August 16. In addition, the World Bank has recently raised its 2006 growth forecast for China to 10.4%, from 9.5%.
Notwithstanding future economic growth in China, the Group"s main geographical markets of Singapore, Malaysia and Indonesia are expected to continue performing well on the back of the region"s buoyant marine and oil and gas industries.
Some useful online sources which provide update on recent steel industry news as well as steel prices include MEPS online and International Iron & Steel Institute online.
4. Does the company monitors the cash conversion cycle? Noted that your inventory turnover is 6 months. Is that the norm for your industry?Steel mills generally take 2-3 months from ordering date to delivery of goods. Each mill typically produces a limited variety of products and sells in bulk quantities. On the other hand, industrial end-users typically require just-in-time deliveries and make piecemeal purchases of a large variety of items. Hence, as a "One-stop" steel distributor, we need to ensure that we have a sufficient and necessarily wide range of available products to fulfill customers" requirements. This is our business model, consequently, our average inventory turnover days is approximately 6 months.
We have a computerized inventory management system to track inventory movement and customers" purchasing patterns. Inventory turnover is not a major cause of concern as our products are generally homogeneous and non-perishable. Our underlying procurement principle is to purchase only what our customers require. Up till now, we have not experienced any stock obsolescence. Our strong financial position helps us to weather adverse economic or price fluctuations so that we are not pressured to liquidate our inventory unfavourably.
For the first half of this year, inventory turnover days fell to 168 from 196 in 1HFY05.
5. Can you breakdown your sales by the industry your customers are in? Any intention to release your results quarterly?
For the first half of this year, revenue from shipbuilding and marine related sectors contributed 63% to Group revenue, while the remaining sales were made to stockists and traders, engineering and fabrication, precision metal stamping, manufacturing, construction and other sectors.
Due to the Group"s current scale of operations as well as limited resources, we presently do not have plans to adopt a quarterly reporting policy for the Group. Nevertheless the Group will continue to maintain good corporate governance practices and ensure timely and transparent disclosures.
6. I find it difficult to find research reports on the company. Will the company be joining the SGX Research Scheme?
Research on Asia Enterprises is presently being covered by SIAS Research.
7. Noted that Tee Yih Jia Food Manufacturing Pte Ltd and Mr Winstedt Chong are your substantial shareholders from your web page. What is the management"s views on this? For Tee Yih Jia, is that an error because I do not see an SGX announcement on this? For Mr Chong, currently is he just a passive investor or does he also give proposals to the company?
Thank you for the replies
Please refer to the following link for the Group"s shareholdings as listed in our Annual Report 2005 :http://asiaenterprises.listedcompany.com/shareholdings.html
Since then, Mr Winstedt Chong has become a substantial shareholder with a stake of approximately 5.6% in the Group. Thus far, Mr Chong has acted purely as a financial investor in the Group.
Dear Marcus, you wrote:
1. I am optimistic about the steel industry in the long term especially in the fast growing economies like China, India and the Middle East.
Does Asia Enterprises have any plans to expand to the countries i"ve mentioned above?
We have established a strong customer base in Southeast Asia and will continue to strengthen our foothold. We are currently also venturing into new territories as we see promising potential in various developing economies. Moving forward, we hope to increase our penetration into these markets.
We will continue to assess the market dynamics of other potential geographical markets. Such considerations would include the supply and demand environment as well as the competitive backdrop of these markets.
Dear Serene Lim, you wrote:
1. Does the company distribute any other metal besides steel like copper or aluminium?
We are a "One-stop" supplier of steel products for regional industrial end-users and do not distribute other metals.
2. Recycling of scrap metal seems to be the trend nowadays as prices escalate due to rising demand. Is Asia Enterprise intending to go into the recycling business given its low cost and high margin potential?
The Group has an established position as a quality supplier of steel products to industrial end-users, with a strong focus on the regional shipbuilding and marine sectors. We presently do not have any plans to venture into the scrap metal recycling business.
Dear Fu Jiayi, you wrote:
Dear Sir,
1. How do you categorise the products that you are selling? Are you adding new category of products? What are these products?
We regularly carry over 25 steel product categories comprising more than 1,200 different items. These include plates, coils, beams, angles, pipes and bars among others. At present, we are widening our product range to include more high-value steel products with the aim of enhancing our position as a "One-Stop" distributor to industrial end-users.
2. What is your assessment of the steel market trend in China? How would Asia Enterprise be affected by the trend?
China remains a net exporter of steel as at June 2006. A forecast done by MEPS predicts that steel production in China would rise by approximately 16.5% in 2006, as compared to the previous year. Efforts to consolidate China"s steel industry are also underway to reduce excess capacity in the Chinese steel industry.
While China has been a net exporter of commercial grade steel, it still imports high grade steel products which are limited in supply. We focus on serving customers in the marine and oil and gas industries, which typically require higher grade steel products that tend to be more resilient and less affected by the general steel price trend.
3. Do you have clients (e.g. Machining companies or others) moved out of Singapore? If so, did you managed to retain them? What did you do to retain your customers which moved out of Singapore?
Some of our customers in the manufacturing and precision metal stamping industries have moved their operations out of Singapore. However, steel being a basic commodity, has a wide range of usage. We have since channeled more marketing efforts towards customers engaged in the engineering / fabrication industries. Our strategy is to directly engage industrial end-users. Over the years, we have built up a diverse base of more than 600 active customers in the Asia Pacific region.
4. Which are the major ship/rig builders among your clients?
Some of our major customers in the shipbuilding and marine-related industries include Keppel Offshore & Marine Group, Jaya Shipbuilding, Labroy Marine Group, SembCorp Marine Group, Pan United Marine Ltd and ASL Marine Holdings Ltd. Traditionally, none of our customers have accounted for more than 10% of Group Revenue.
Moving forward, we intend to continue strengthening our foothold in the buoyant shipbuilding and marine-related sectors.
Dear Investors,
Thank you for all your questions and the interest in Asia Enterprises Holding Limited. We have come to the end of this Q&A session.
We have enjoyed and learnt much from your questions and we hope that you have a better insight of our Company and know more about our operations.
Kind regards,
The Management Team
Asia Enterprises Holding Limited