I bought Asia Enterprises Holdings on 29th May 2008

About Asia Enterprises Holding Limited

Asia Enterprises Holding Limited (AsiaEntH) is a distributor of a wide range of steel products to industrial end-users in Singapore and the Asia-Pacific region. It is focused primarily in the shipbuilding and marine-related sectors, accounting for about 60% in revenue for FY 2007, with construction accounting for 8%. Stockists, traders, precision metal stamping, manufacturing and engineering/fabrication industries accounting for the rest.

Rationale

Financial performance (internal environment)

AsiaEntH is able to achieve consistent ROE (with comparable ROA) above 17% for the past few years. (Even when steel prices plunge in 2005, they could achieve an ROE of 17.1%). Net profit margin is consistent at about 10%. All of these are achieved without little or no debt. At around 1.1x book, I won't say its cheap, but at least it is inexpensive.

Business environment (external environment)

According the data from EDB, Singapore's transport engineering main achievements:

• 70% global market share of the conversion of Floating Production Storage Offloading (FPSO)
• 70% world market share in jack-up rigs
• Among the top 3 global centres for oil & gas (O&G) equipment manufacturing and servicing
• #1 in Asia by production volumes for 6 of the top 10 O&G equipment players

Moreover the major infrastructure and other big projects to rejuvenate Singapore over the next several years already annouced, the demand for steel products should be sustainable in the foreseeable horizon.

Major Plus

Due to the cyclical nature of the business, the company had been able to weather many storms due to its strategy of keeping a sound financial position (NIL debt). The following is quoted from the management Q & A with shareholders:


... We believe that our management expertise, experience and strong financial position are key in mitigating the risks arising from fluctuations in steel prices. With zero net gearing, we are not under significant pressure to liquidate our stocks during unfavourable periods. To cite an example, when global steel prices corrected steeply in 2005, the Group managed to sustain its net profit for the year, ...


Major Minus

Instead of one external cycle for typical companies, AsiaEntH is subjected to 2 cycles, Global Steel Prices and Ship Building & Marine Related Cycles. The worst for AsiaEnt could occur when the troughs of these two cycles coincide. Then, at least it has the financial capacity to sit on its stock pile of raw steel and hopefully enough to outlast its competitors.

Conclusion

I'm fully aware that the current outstanding business performance of AsiaEntH is the result of the current oil and commodity bubble. The final test would come for all the companies in this sector when the bubbles burst eventually. Hopefully, AsiaEntH will emerge as a stronger survivor.