CosmoSteel Holdings Ltd (B9S:SES)

Recent Share Price: S$0.082

Accounting: Singapore Accounting Standards

Fiscal Year: Sept. 30

Market Cap: S$23.8 million ($17.5 million)cosmosteel

CosmoSteel Holdings Ltd. is an investment company, which engages in the distribution of piping system components.  The company was founded in 1984 and is headquartered in Singapore.

CosmoSteel Holdings Limited, the holding company of Kim Seng Huat Hardware Pte Ltd, is a supplier and distributor of piping system components to the Energy, Marine and other industries in Southeast Asia and other regions.  The Group has over 411,000 sq feet of storage space across four warehouses and offers a comprehensive range of high-quality products, sourced from major international manufacturers. Over the years, CosmoSteel has forged close ties with supply chain partners, ensuring its supply chain quality and continuity. It also has a diverse base of over 400 customers including several blue-chip energy companies such as Shell and Alstom.

It operates through the following segments: Energy, Marine, Trading, and Others.

  • The Energy segment covers oil and gas, engineering and construction, petrochemical and power.
  • The Marine segment offers shipbuilding and repair.
  • The Trading segment includes traders purchase goods and on-sell to end-user customers.
    Sales per Businesses
    2016 2017 Delta
    SGD (in Million) % SGD (in Million) %
    Energy 40.17 58.4% 57.52 74.8% +43.19%
    Marine 18.27 26.6% 5.62 7.3% -69.24%
    Trading 8.83 12.8% 12.75 16.6% +44.4%
    Others 1.49 2.2% 1.04 1.3% -30.61%
Sales per Regions
2016 2017 Delta
SGD (in Million) % SGD (in Million) %
Singapore 39.88 58% 25.81 33.6% -35.29%
Vietnam 8.36 12.2% 11.33 14.7% +35.53%
Others 5.51 8% 4.05 5.3% -26.45%
Japan 5.25 7.6% 23.68 30.8% +351.12%
Malaysia 3.75 5.5% 1.95 2.5% -48.05%
Brunei 3.07 4.5% 2.60 3.4% -15.16%
Europe 2.28 3.3% 2.72 3.5% +19.05%
Indonesia 0.488 0.7% 1.51 2% +209.22%
Middle East 0.119 0.2% 2.46 3.2% +1968.91%
Thailand 0.057 0.1% 0.825 1.1% +1347.37%

From the most recent earnings report, revenue increased by $14.2 million or 105.4% from $13.4 million in 2QFY2017 to $27.6 million in 2QFY2018. The increase was due mainly to increase in revenue from customers in the Energy Sector, partly offset by a decrease in revenue from Marine and Trading Sectors.

Investor Presentation 1HY2018

Recent History

2018

On June 4, the SGX-ST put the company on watch due to the consecutive 3-year pre-tax losses accumulated by the company.  Cosmosteel has 36 months to restore financial health.

On April 23, Alan John Crawford, a Director at Ernst & Young, was elected to the board.  He will chair the audit committee.

On February 6, Cosmosteel announced that the net proceeds of S$782,000 previously allocated for the acquisition of machinery and equipment at 36 Tuas Crescent will be re-allocated for the intended use of general working capital purposes.

On January 24, Jovenal Santiago, age 80, retired from the board.

On January 6, Osama Murai was elected to the board, replacing the departed board member, Seiji Usui (since 2014). Hanwa Co., a controlling shareholder, made the election.  This board position has been used as an attempt to expand business in Japan.

2017

On June 5, Cosmosteel was put on the watch list by the SGX-ST due to the minimum trading price (“MTP”) entry criteria.

On February 13, announced plans for the construction of a warehouse at 90 Second Lok Yang Way, by way of the capital funding in 2015.

2016

On November 30, Laura Ng Ying Shu, CFO, age 39, left for personal reasons.

2015

On May 7, the company issued a profit warning, sending the share price considerably lower.

On March 6, 26.4 million shares were issued following a private share placement exercise with Hanwa Co., Ltd., raising the total number of issued shares to 290,399,997.  Net proceeds of placement were S$14.2 million (~$0.54 per share).  CosmoSteel founder and CEO Ong Chin Sum sold his 21.3% stake at 58 cents a share to Hanwa, which will end up with 28.4% of the company’s enlarged share base and get two board seats.  The deal was part of a strategic alliance with Hanwa.

2014

Mr. Ong Ching Sum, the CEO of the Company, and Mr Ong Tong Yang (son), an Executive Director of the Company were called in by the country’s Corrupt Practices Investigation Bureau for giving “illegal gratification to an agent” (i.e., bribes) and released on bail.  It does not appear that charges were ever brought. [Company announcement]

Concerns

  • Cautionary flag on the elevated level of accruals
  • Debt levels

Other

  • No stock options
  • No pension plan
  • Purchases from Hanwa are approximately 10% of COGS
  • S$11.2 million in off-balance sheet obligations

Write-Ups

Insider Ownership

NAME OF SHAREHOLDERS NUMBER OF SHARES DIRECT INTEREST %
Daiwa Capital Markets Singapore Limited 82,617,982 28.45%
Ong Tong Hai 28,411,996 9.78%
Ong Tong Yang (Weng DongYang) 19,954,396 6.87%
Mr Ong Tong Hai and Mr Ong Tong Yang are brothers. 
In Millions 9/30/15 9/30/16 9/30/17 3/31/18
Cash and Short-term Investments  SGD 26.60  SGD 18.67  SGD 22.90  SGD 12.62
(0.85 * Accounts Receivable)  SGD 21.98  SGD 14.25  SGD 22.98  SGD 26.03
(0.60 * Inventory)  SGD 56.37  SGD 47.30  SGD 41.32  SGD 34.81
(0.25 * Other Current)  SGD 0.14  SGD 0.10  SGD 0.12  SGD 0.05
Total Liabilities  SGD 57.53  SGD 30.05  SGD 39.96  SGD 43.31
Preferred Stock  SGD –  SGD –  SGD –  SGD –
NNWC  SGD 47.56  SGD 50.27  SGD 47.37  SGD 30.16
NCAV  SGD 89.43  SGD 84.63  SGD 79.33  SGD 73.83
NCAV + LT Investments  SGD 89.56  SGD 84.72  SGD 79.33  SGD 73.83
TBV  SGD 122.63  SGD 115.22  SGD 103.64  SGD 101.33
Enterprise Value  SGD 48.79  SGD 32.98  SGD 38.62  SGD 41.36
Retained Earnings  SGD 50.81  SGD 44.78  SGD 37.19  SGD 34.84
Dividends Paid  SGD (1.32)  SGD (1.45)  SGD (1.45)  SGD –
Sale or Purchase of Stock  SGD 14.26  SGD –  SGD –  SGD –
Shares Outstanding  290,399,997  290,399,997  290,399,997  290,399,997
P / NNWC 71% 66% 62% 59%
P / NCAV 38% 39% 37% 32%
P / NCAV + LT Investments 38% 39% 37% 32%
P / TBV 27% 29% 28% 24%
NCAV Burn Rate 7.9% -5.4% -6.3% -6.9%
Debt / Equity 33.9% 15.8% 31.0% 28.9%
Sloan Accrual Ratio 8.8% -4.4% -14.5%
F-Score 1 5 4
FS-Score 1 6 5
Z-Score  2.0  2.1  1.8
Beneish M-Score  (3.0)
EV / EBITDA  12.14  N/A  N/A
EV / Operating Income (5yr)  1.48  1.90  NA
EV / Operating Income (10yr)  0.83
EV / FCF (3yr)  NA  NA  NA
EV / FCF (5yr)  3.93  4.37  3.96
EV / FCF (10yr)  2.28
EBITDA (FY)  SGD 4.02  SGD (2.53)  SGD (4.54)
Operating Income (5yr)  SGD 32.95  SGD 17.35  SGD (6.91)
Operating Income (10yr)  SGD 46.57
FCF (3yr)  SGD (0.30)  SGD (4.52)  SGD (6.72)
FCF (5yr)  SGD 12.41  SGD 7.55  SGD 9.76
FCF (10yr)  SGD 16.94
Untitled
Disclosure: We own shares in CosmoSteel Holdings Ltd (B9S:SES)
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