Asia Enterprises

Asia Enterprises: Market Insight highlights Asia Enterprises as a potential valuation idea, following a recent corporate presentation by the group on its Shareholders Day.

Asia Enterprises counts itself as one of Singapore’s largest suppliers of steel products, with a strong focus on industrial end-users and over 40 years of experience in the capital intensive business.

Despite being profitable over the last 10 years, the group appears on track to register a net loss for FY15 (1H15 net loss at $1.1m), due to the deterioration of market demand for steel and excess steel production capacities worldwide.

However, given its sound financial standing, the group believes it has the ability to ride out the current business slowdown, and is well-positioned to capitalise on opportunities when the major steel consumption industries start to recover from the cyclical downturn.

The key strength of the group lies in its solid balance sheet, with zero borrowings and net cash position of $65.0m, representing 19¢ per share.

With the group’s share price currently trading at 19.9¢, this means that 95% of share price is backed by cash. This translates to a an implied ex-cash P/B of 0.08x, which is clearly unwarranted.

Stripping out the cash, investors will be getting the group’s operating business and remaining assets comprising largely of inventories ($32.8m), trade and other receivables ($6.8m), and three facilities (two warehouses and a steel processing plant-cum-warehouse), which are booked at historical cost, for almost next to nothing.

Ascribing a 50% haircut to the value of the group’s non-cash assets and adding back the group’s cash could give a conservative fair value of 25¢, representing 25% upside from current share price