Asia Enterprises Holding Ltd

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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 Chong, you wrote:

1. I congratulate the Management for a job well done for FY 06 and thank you for the handsome dividend. My only question is :- What is the balance tax credit for the group as at Ending 31 Dec 06 after taking into consideration of the divident pay out for FY 06. Pls keep in mind that all outstanding or unutilised tax credit has a time bar up till end of 07. If there is still a substantial amount in the tax bracket, will the company consider to utilise it for interim divident for 1st half 07 or for other form of structures such as bonus share or warrant issues?
Thank You

Asia Enterprises Holding Limited was incorporated in Singapore only in 2005 under the one-tier corporate tax system. The company does not have any tax credit balances and dividends paid out by the company are tax-exempt.

Dear Stockist, you wrote:

1. Asia Enterprise's 2005 Annual Report lists Plant & Eqpt (at cost) of $9.9 mil having a book value of only $1.8 mil i.e. largely depreciated. Is this due to accelerated depreciation or does Asia Enterprise foresee large capital outlays for the replacement of Plant & Eqpt?

Our plant and equipment are depreciated on a straight-line basis over their estimated useful lives. The annual rate of depreciation for plant and equipment ranges from 10.0% to 33.3%. Most of the cost of the plant and equipment reflected at the end of 2005 pertains to investments made during the Group's earlier years of operation, hence the net book value stood at only S$1.8 million at year-end. Fully depreciated assets still in use are retained in our financial statement.

We do not foresee large capital outlays for replacement of plant and equipment in this financial year (FY2007), as most of our plant and equipment currently in use are in relatively good condition to support our business operations. We review the residual values and the useful life of our assets at least at each financial year-end and also to assess their conditions to decide if replacement is necessary. Our capital expenditure in FY2005 and FY2006 were S$205,000 and S$44,000 respectively.

2. Asia Enterprises has paid off $7.5 mil of debt in the last FY and now has $20.3 mil of cash vs debt of only $1.3 mil. What plans does management have for the cash? Any thoughts on a share buyback or special dividends?

We believe in maintaining a sound cash position to ensure sufficient internal working capital to finance our inventory purchases in order to capitalise on emerging growth trends in the steel industry. In addition, our strong cash balance better positions the Group to weather any difficult periods that may arise.

As Asia Enterprises was listed on the Main Board of the SGX for only more than a year, we are unlikely to consider a share buy-back this year. As a demonstration of our commitment to reward shareholders and enhance shareholder value, we have distributed 40% of our net profits as dividends in FY2005 and have proposed to pay out a similar ratio in FY2006. On an absolute dollar basis, our dividend per share has improved from 1.774 cents to 2.239 cents.

The amount of dividends we pay out in the current financial year will depend on the Group's operating results, financial position, working capital needs and other cash requirements for business expansion.

Thanks

Dear Kelvin, you wrote:

Hi.

Thank you for this Q&A opportunity and congrats on the good FY results. My Qs:

1. M&A

The company has been talking about exploring acquisition M&A ever since listing. But yet there is no news in this area. What are the M&A policy, direction & criteria the company is looking at? The company needs to elaborate more on this area or else the management may risk losing creditability.

Since our listing, we have come across a number of potential M&A opportunities that we duly assess to determine if they could enhance the Group's growth profile. Our aim is to seek suitable acquisitions or strategic alliances within the steel industry and in both the upstream and downstream activities. The Group may consider joint ventures or investments in manufacturers of steel products to broaden our supply sources and customer base, or investments in companies engaging in similar distribution business that could extend the Group's market reach beyond our current markets in Southeast Asia.

2. Land & Properties

From your prospectus, the company owns a 2 office units in Singapore and Shanghai, 1 unutilised industrial land in China and a few leased property from JTC.

Does the company have the current market value of the above vs. the book value? Will the company explore selling the office units in current buoyant market? What is the plan for the unutilized land? Have the company consider either (1) sell to REIT and leaseback the JTC land or (2) move its operations to lower cost country such as Malaysia?

We do not revalue our properties according to current market conditions, hence we are unable to provide the current market value of our properties. Presently, we are earning good rental yield from the two office units in Singapore and Shanghai as they are located in prime areas. We believe having a ready piece of land in Jiangsu, China may be beneficial should we embark on any business plans there. We presently do not have any plans to divest these properties.

We believe Singapore's strategic central location and excellent infrastructure allows the Group to efficiently serve our customers across the Southeast Asia region. We have a fairly lean operating cost structure and we do not see an immediate need to relocate to lower cost countries.

3. Analyst report

Currently I am only aware of Phillip Securities covering the company. Look at the latest report, it attributes the good performance to merely a rise in steel prices. I believe the target price still unvalued the company. What is management's view on the report? Are there any plans to further strengthen the competitive advantages of the company so as to be less dependent on steel price movement?

Does the company have the current market value of the above vs. the book value? Will the company explore selling the office units in current buoyant market? What is the plan for the unutilized land? Have the company consider either (1) sell to REIT and leaseback the JTC land or (2) move its operations to lower cost country such as Malaysia?

Besides the rise in steel prices, we believe Phillips Securities has also adequately pointed out the robust demand we saw in FY2006 from the shipbuilding and marine-related sectors, as well as our continuous cost control effort that has also contributed to the growth in the Group's net profit margin. Phillips Securities has also analysed Asia Enterprises' balance sheet and highlighted the Group as one of few steel players that has positive net cash position or low gearing.

Steel is a basic and essential commodity with a variety of applications. As such, the steel business is a viable long-term trade in our opinion. To capitalise on the fundamental need for steel, we need to continue strengthening our reputation, customer and supplier network as well as maintain the flexibility to quickly shift our focus to sectors where demand is improving. In addition, we believe that having a strong net cash position places the Group in a better position to seize emerging market opportunities and weather any volatile steel price movements. We will also continue building on our wealth of experience and knowledge of the steel market which is instrumental to the Group's profitability.

4. Benchmarking

The company competes against other listed companies such as HG Metal and Hup Steel. Does the management benchmark itself against these companies in terms of profitability, ROE and operating efficiency?

HG Metal and Hup Steel are among our listed peers, however each company has its own business model and strengths. We set our internal goals based on the Group's policies and strategies, and in outlining our objectives, we may also make reference to the regional steel industry as a whole.

5. Updating shareholders & company profile

The company has only been making results announcement twice a year and there is hardly any news update in between. The results announcements are also normally not covered by the major newspapers. Can the company strive to update shareholders on a more frequent basis and also raise the profile of the company? For e.g. the company can make announcement whenever it has secured new customer/ make new inroads in new markets. On corporate profile, the company should have a spokesperson and gives more media interviews. In this aspect the company can learn from HG Metal.

The Group has established several channels to communicate our financial results to the investing public, including our corporate website, Shareinvestor online investor portal, and regular briefings for analysts. If we have any substantial and newsworthy information to share with our shareholders and investors, we would endeavour to provide the necessary updates. Recently, Asia Enterprises was featured in the SME Spotlight column of The Business Times.

6. New substantial shareholder

Noted that Mr. Winstedt Chong has been acquiring shares from the open market. Has he been just a passive financial investor or did he also been giving proposals to the company?

Mr Chong does not have any role in the executive functions of Asia Enterprises.

Dear Leong Lai Yhing, you wrote:

1. I would like to know whether the company would consider giving dividends more than once per year as in some other companies. What are the possibilities of issuing bonus shares or splitting shares in the long run.

How can the shareholders interest being taken care of in the long term?

Mdm Leong

The Group believes in rewarding our shareholders for their belief in Asia Enterprises. For the past thirty over years, we have consistently paid dividends every year. Since our listing on the Main Board of the SGX in August 2005, we believe we have shown our commitment towards enhancing shareholder value with consecutive dividend distributions of 40% of Group net profits in the past two financial years.

To increase shareholder value, the Group is presently focused on organic growth initiatives. However, we will also continue to explore suitable investment opportunities to drive growth, as well as consider various other avenues to reward our shareholders in the long term.