Union Steel Holdings Limited - MANAGEMENT REPLY: Will it further impair its inventories?

Management has replied

It lost money in FY15 due to lacklustre demand from China. But it is trying to stay afloat by expanding.

FRIDAY, 20 NOVEMBER 2015 – Union Steel Holdings is not only struggling to generate revenue but it is also faces risk of being added to the Singapore Exchange's watch-list because its stock price is below the minimum S$0.20 for Mainboard-listed companies.

Shareholders passed a plan at a recent EGM to consolidate ten shares into one share.

Theoretically this will see the share price rise to S$1.10, although the company says there is no assurance that it will, or stay there long term.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies to which global investors need answers.

Question

1. Will it further impair its inventories?

Union Steel recorded non-operating expenses of S$13.6 mln in FY15, double that in FY14, mainly due to a S$6.5 mln impairment of inventory arising from depressed metal prices.

Inventories stood at S$30.8 mln in FY15 versus S$43.1 mln in FY14.

The World Steel Association forecast world steel demand to grow 1.4% to 1,565 Mt in 2016.

The Group also expects that lacklustre market demand for steel products will lead to intense competition within the industry.

Hence, our question.

Question

2. How much will its recent investments add to top line and bottom line?

As a result of lacklustre outlook of the steel industry, the Group says it will continue to seek growth organically and through acquisitions.

In line with its plans to diversify and expand into complementary business areas, it recently acquired a new subsidiary, Gee Sheng Machinery and Engineering Pte Ltd for S$6 mln.

It carries out civil construction and engineering work and manufactures motor vehicle bodies (so-called coachwork), trailers and semi-trailers.

It also recently bought two land parcels and a scrap metal plant in Malaysia from Chye Hup Heng Sdn Bhd for S$5.4 mln.

These investments are about 36% of the Group's current cash balance of S$31.2 mln and debt to equity ratio is about 60%.

When will these investments bear fruit?

(Read the full story to get all 5 questions)

Reply from NRA Capital Pte Ltd:Thanks for reaching out. I regret to inform you that the company would prefer not to respond at this time, as the information required involves forward projections which are sensitive and rather difficult to ascertain due to market uncertainties.

We thank Evan Ong from NRA Capital for his response.

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