SINGAPORE (June 8): CIMB says investors may want to take a chance on Hupsteel, the steel stockist serving the marine, oil and gas (O&G) and construction sectors.
Firstly, the group has reversed out of six straight quarters of net losses to a slight positive net profit of $0.5 million in 2Q17, aided by a leaner cost structure and stabilised average selling prices.
Its significant net losses were largely due to the provisions recognised for inventory balances and receivables. After the provisions however, these assets are now reflected at realistic values, according to management.
(See more: Hupsteel swings back to profitability in 3Q)
In an unrated report on Thursday, Roy Chen says Hupsteel has a diversified base of close to 500 customers regionally with well-known customers such as Keppel, Sembcorp, Unocal and Gas Malaysia.
At end 3Q17, Hupsteel’s assets comprised $55 million cash, $13 million receivables and $25 million inventory, against total liabilities of $4 million.
Hupsteel also holds a number of sizeable fixed assets. These include investment property, Plant-Process-Equipment at a historical cost of $21 million and available-for-sale financial assets with marked to market value of $21 million.
According to its FY16 annual report, estimated fair value of the group’s freehold investment properties was about $80 million, much higher than their stated book value of $34 million.
Hupsteel also has a history of paying consistent dividends. It paid total DPS of 5 cents per annum in the profitable years of FY10-14 although DPS was cut to 0.5 cent and 1 cent for FY15 and FY16 respectively when the group sank into the red.
Over the plast 12 months, Hupsteel has bought back 741,600 shares, or 0.6% of total issued shares, from the open market, with the highest transacted price at 71.5 cents.
Shares of Hupsteel are trading at 74 cents, giving it a market cap of $90 million.
