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Thursday, May 14, 2015

Nam Lee Metals - H1 FY15 Results & Thoughts

Not too long ago, I've written a post regarding buying into a position in Nam Lee Metals which you can view here. The investment thesis remains largely the same but thought that I will update the tables for those who are interested since they have announced their half yearly results this evening.

B's customized financial overview (2007 - 2015*)

Q2 Result remains largely within the expectations that the business seems to be trending back up after a difficult last 2 years which the management concede. In its outlook, the management also reiterated that business and demand for aluminium will pick up so we will probably see stronger performance from here.

There's a few things to highlight from the Q2 results.

Free cash flow has gone into negative territory because of negative working capital and requirement for capex which they have used to purchase a warehouse which was highlighted earlier. Cash conversion cycle is slow and this is pretty common to them as they will have a year of huge positive operating cashflow followed by negative operating cashflow next.

As previously highlighted in the first article, I was not too concerned about this because they have the huge cash balance in their books to mitigate the slow turnaround. Inventory did increase significantly in this quarter, implying that the company is stacking up for the increased volume. That's all that matters at the end of the day.

The company also took up term loans in this quarter which was not there previously. I suspect this facility is to ensure that working capital operations can move on smoothly in case they needed more time for turnaround and cash is not sufficient to cover them temporarily. For now, I don't see too much concern regarding this unless this gets geared up pretty high.

Earnings yield annualized is now at 14.6%, which implied a price to earnings ratio of around 6.8. It's pretty decent in my opinion, given that the company tends to payout a conservative 1.5 cents dividends to shareholders. First half earnings per share is already at 2.12 cents, so this is already covering the payout they are supposed to usually give out.

There shouldn't be any catalyst to move up the share price aggressively, so this will continue to be a long term play, yielding decent yield for now for me.

Vested with 70,000 shares as of writing.


2 comments:

  1. my concern will come when the general manager leaves one day n no one as capable comes in.
    the yong brothers are getting old. Most of the day to day operations are settled by the gm.
    i guess it will be another 3-5yrs before that happens.

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    Replies
    1. Hi Paul

      Succession planning is always an unknown risk for any company out there. I don't think there's anything we can do to worry at the moment. I'll let nature takes its course on this.

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