Nam Lee Pressed Metal

I would definitely hope Nam Lee would have a smooth management transition because I have some holdings too. However, I have learnt not to ignore news from the ground.

Previously, I have a position on a construction firm which I was denial on the negative ground news about a project overrun. I could not search anywhere online regarding this news but it turned out true after 6 months and the share price plunged which I am now 50% under! Since then I have been asking around for news about shares I am interested in and not just online searching or relying on reports because reports are history and are at least 6 months behind. Ask around the employees, contractors, associates or the clients of the company and we may have first hand information which could help us protect our position.

I have no intention to spread rumours but just to bring out my observations and hope others could discuss or even find out more relevant information.

I wouldn't expect new management (if any) to assimilate easily into a company that has been run by the old birds for awhile. Nobody, including myself, likes change as its involves people getting out of their comfort zone so naturally grumblings are to be expected.

I am all for change, new and young team may add a different perspective on how to run and improve the business. Perhaps someone may be able to put that cash hoard to good use?

The above being said, I certainly hope its not a case of a prodigal son granted the position solely because of blood ties and sits there collecting fat salary doing nothing much and womanizing or what not. If you hear such stories, do let me know.

I attended today's AGM. Below are my notes to the best of my recollection (so no guarantees of accuracy). If other Buddies attended, please fell free to add / correct.

1. The Carrier contract for the refrigerated containers has been signed / renewed for five years

2. All of their bond portfolio is accounted for as "Held to maturity". The bonds mature between 2020 and 2012. They are all AAA rated GLC issuers, so whilst investors may have concerns about interest rate risk, credit risk should not be a concern. They are not really looking to sell them...

3. Nam Lee has a share buy-back programme but never uses it (and it was renewed again at the AGM) as the free float is relatively small. Prefer to return cash to investors in the form of dividends even though the shares trade at a large discount to NAV and hence share buy back would probably be more effective.

4. Last year Carrier business accounted for around 60% of revenues. The business is relatively stable but, as a percentage of revenues, it will jump up and down as the construction business is more volatile (depends on contract wins...)

5. Construction margins are volatile. Depends on each individual contract (how competitive, did they cost it correctly etc) but on a 2-3 year average, Carrier gross margins are probably 2 -3 percent lower than construction contracts (which surprised me; I thought they would have been much lower)

6. The construction business is divided into Mild Steel and Aluminium. For Mild Steel they get about 30-40% of HDB's business as there are only two competitors. The market size of Mild Steel is small, hence not many companies focus on it. The Aluminium business is super competitive.

7.Carrier is converting some of the parts from metal to plastic but it is still a small portion.

8. Nam Lee produced refrigerated containers for 10 years before the first Carrier contract (15 years ago) so had extensive experience.

9. In addition to the FX protection provided from Carrier, there is also a "Raw Materials Escalation Clause" to protect Nam Lee from commodity prices. Hence, in my view, the Carrier business can really be viewed as a "cost plus" type business. Relatively stable profit margins but dependent upon volumes for absolute profit numbers.

10. All of the Carrier business is now based at Nam Lee's Malaysian plant.

11. Previously, Nam Lee would sell parts to Carrier which would then do its own assembly at is Singapore facility. For the current year, Carrier has given Nam Lee orders for about 5% of sales to do its own assembly. If that is successful, then Nam Lee expects another 5% next year.

12. Nam Lee has relocated part of its production to Malaysia due to cheaper land and labour. However, they kept repeating that there will be other costs (e.g. new Malaysian GST plus Malaysian labour productivity is lower, so need more workers) and that the real benefit is that there is no shortage of labour in Malaysia whereas there is in Singapore. Hence they can increase production by being in Malaysia which they would find it difficult to do in Singapore.

13. 90% of last year's revenue decline was from infrastructure (ie suggestion the Carrier business was stable). More positive on Carrier given US recovery.

14. Govt has announced fewer HDB new builds so that business will decline. Company expects to focus more on infrastructure and commercial projects

15. Trade receivables : majority are from Carrier (I guess because they finished a lot of the HDB projects last year). Same goes for inventory. They need to be able to respond quickly if Carrier asks for more.

16. New Singapore factory is in production; they Malaysia factory is ramping up. Will take 6 months to fully ramp up. Don't expect any more major capsx for the next 3- 6 years. Expect $5MM capex this year.

17. "Investments held for sale" is equities

18. Relocation costs of Singapore factory to Kranji was $1MM

19. Succession plan : they are grooming talent within the company.

20. Dvd of 1.5 cents this year was 50% of net income vs historically 30%.

Overall, it felt like they are positive on the Carrier business (US recovery plus doing more assembly for Carrier). Construction biz is still very competitive but they also seemed a bit more positive.

Company remains debt free, pays a decent dividend and trades at a significant discount to NAV. On the flip side, management and majority owners seem very conservative and I doubt we will see a major increase in dividends, share buy-back or any other event to crystallise value except if the business grows. Hence, this is probably one of those stocks where you clip the dividends but you may have to wait quite a while until the share price appreciates...

Vested

Thank you for sharing GreedandFear. I was unable to attend due to work commitments. Nothing surprising based on what you mentioned and I have no issues with Nam Lee being a slow and boring counter so long as it remains stable like it is now. Value will eventually be realized.

I would have liked to question them on rumours of unhappiness among existing staff about the talent from within (likely all family members) that is being groomed lol.

I was a bit late for the meeting but was able to get most of the notes you have taken .

The following are some of the additional points I can recall as usual there is no guarantees of accuracy as well

FY2015 capital expenditure (CAPEX) will be around $13 millions, i.e. S$8 millions for the new factory in Malaysia acquired in Oct 2014 and another S$5 million for new machinery for the factory.

There is no plan to expand to new businesses and their business into other regions

(30-01-2015, 11:46 AM)GreedandFear Wrote: 2. All of their bond portfolio is accounted for as "Held to maturity". The bonds mature between 2020 and 2012. They are all AAA rated GLC issuers, so whilst investors may have concerns about interest rate risk, credit risk should not be a concern. They are not really looking to sell them...

Should be 2022 instead of 2012. According to the management, Impairment will be made if there is a change in fair value.

(30-01-2015, 11:46 AM)GreedandFear Wrote: 4. Last year Carrier business accounted for around 60% of revenues. The business is relatively stable but, as a percentage of revenues, it will jump up and down as the construction business is more volatile (depends on contract wins...)

If I am not wrong, it is 60% of the aluminium segment revenues of S$111 million instead of the total revenue. The other 40% is for project work which command higher margin as compared to refrigeration business.

(30-01-2015, 11:46 AM)GreedandFear Wrote: 13. 90% of last year's revenue decline was from infrastructure (ie suggestion the Carrier business was stable). More positive on Carrier given US recovery.

Heard from GM Lim Hock Leong that there is a 20% order increased from Carrier in last quarter, 1QFY2015??

(30-01-2015, 11:46 AM)GreedandFear Wrote: 14. Govt has announced fewer HDB new builds so that business will decline. Company expects to focus more on infrastructure and commercial projects

Another information I heard from GM was the company recently won a contract to supply the curtain wall? for Yishun hospital see the following for more information.
http://www.yishunhospital.com.sg/

(30-01-2015, 11:46 AM)GreedandFear Wrote: 20. Dvd of 1.5 cents this year was 50% of net income vs historically 30%.

In view of the cash balance in the book, one of the shareholders is proposing to give a total of 2 cents, 1 cents for interim dividend and another 1 cent for final dividend. Mr Lim said that the high cash level is mainly for working capital in the event of ramp up of orders from carrier.

Vested.

MY COMMENTS IN UPPER CASE

(30-01-2015, 03:57 PM)ngcheeki Wrote: I was a bit late for the meeting but was able to get most of the notes you have taken .

The following are some of the additional points I can recall as usual there is no guarantees of accuracy as well

FY2015 capital expenditure (CAPEX) will be around $13 millions, i.e. S$8 millions for the new factory in Malaysia acquired in Oct 2014 and another S$5 million for new machinery for the factory.

CORRECT.

There is no plan to expand to new businesses and their business into other regions

YES - FOCUS WILL BE ON HOPEFULLY EXPANDING THE CARRIER BUSINESS BY ALSO DOING THE ASSEMBLY.

(30-01-2015, 11:46 AM)GreedandFear Wrote: 2. All of their bond portfolio is accounted for as "Held to maturity". The bonds mature between 2020 and 2012. They are all AAA rated GLC issuers, so whilst investors may have concerns about interest rate risk, credit risk should not be a concern. They are not really looking to sell them...

Should be 2022 instead of 2012. According to the management, Impairment will be made if there is a change in fair value.

CORRECT - SORRY, TYPO

(30-01-2015, 11:46 AM)GreedandFear Wrote: 4. Last year Carrier business accounted for around 60% of revenues. The business is relatively stable but, as a percentage of revenues, it will jump up and down as the construction business is more volatile (depends on contract wins...)

If I am not wrong, it is 60% of the aluminium segment revenues of S$111 million instead of the total revenue. The other 40% is for project work which command higher margin as compared to refrigeration business.

NOT SURE BUT, IN ANY CASE, THE TWO NUMBERS SHOULDN'T BE TOO FAR OFF

(30-01-2015, 11:46 AM)GreedandFear Wrote: 13. 90% of last year's revenue decline was from infrastructure (ie suggestion the Carrier business was stable). More positive on Carrier given US recovery.

Heard from GM Lim Hock Leong that there is a 20% order increased from Carrier in last quarter, 1QFY2015??

(30-01-2015, 11:46 AM)GreedandFear Wrote: 14. Govt has announced fewer HDB new builds so that business will decline. Company expects to focus more on infrastructure and commercial projects

Another information I heard from GM was the company recently won a contract to supply the curtain wall? for Yishun hospital see the following for more information.
http://www.yishunhospital.com.sg/

(30-01-2015, 11:46 AM)GreedandFear Wrote: 20. Dvd of 1.5 cents this year was 50% of net income vs historically 30%.

In view of the cash balance in the book, one of the shareholders is proposing to give a total of 2 cents, 1 cents for interim dividend and another 1 cent for final dividend. Mr Lim said that the high cash level is mainly for working capital in the event of ramp up of orders from carrier.

I THINK THEY POLITELY DISMISSED THE IDEA OF A 2 CENTS DIVIDEND BY POINTING OUT THAT THE PAY-OUT RATIO FOR THE YEAR WAS 50% INSTEAD OF 30% HISTORICALLY

Vested.

Thanks for feedback on AGM. Carrier business should be ramping up from low oil price benefitting shipping. However the property side business should deteriorate further given cooling sg prop market.

Even after discounting the property related side of business, value and mos are still looks okish to hold.

=v=

via Galaxy Tab S with Tapatalk

Nam Lee has been trading around the same price and around the same valuations for the past ~7 years.

Going by the biblical teachings of our father on the top left, if a stock hasn't had at least a 50% gain by the “end of the second calendar year from the time of purchase, sell it regardless of price.”

Any thoughts?

(09-04-2015, 08:06 PM)beau Wrote: Nam Lee has been trading around the same price and around the same valuations for the past ~7 years.

Going by the biblical teachings of our father on the top left, if a stock hasn't had at least a 50% gain by the “end of the second calendar year from the time of purchase, sell it regardless of price.”

Any thoughts?

Which bible did Graham use? And Graham did not know Nam Lee or study its balance sheet.

I would rather bet on this idiom: Every dog has its day. The fact remains: Nam Lee continues to hold a huge amount of excess cash/capital which can be paid out as one of more jumbo dividends.

(09-04-2015, 08:06 PM)beau Wrote: Nam Lee has been trading around the same price and around the same valuations for the past ~7 years.

Going by the biblical teachings of our father on the top left, if a stock hasn't had at least a 50% gain by the “end of the second calendar year from the time of purchase, sell it regardless of price.”

Any thoughts?

are you trolling?