In terms of the volatility of the cost of goods in Aluminium and Steel, the management asserted that they are able to pass on the costs to the customer. In other words, I believe what they are trying to say is they are able to control the margins should the costs go up.
Nam Lee reported their half yearly results last Friday which I quickly want to update after my last post on the company a year ago.
The company has continued from their momentum last year to churn out good operational performance this half yearly and this is evident from the 27.4% increase year on year from the gross profits and 18.8% increase year on year based on net profit.
A more detailed breakdown can be seen from the table below:
In terms of cashflow, we all know how much they rely on their working capital due to the nature of the business, keeping inventory, longer cash conversion cycle, etc. In this regard, investors who are seeking for companies that are cash rich might be disappointed to know that they will continue to keep their cash for working capital purpose. For those who are curious, their cash equivalent (including long term bond) less borrowings are worth 19.5 cents while their share price are at 29.5 cents. That’s how much cash they have to hold on their balance sheet.
It’s a pity that the company did not disclose their segmentation on the product level so this leaves everyone hanging guessing around, especially since we know the construction side of the business are slowing down. Having said that, they do disclose based on the metals segmentation contribution and again aluminium came in top, followed by steel. Looking at the results, it appears that they are doing well for the Carrier Transicold side of the refrigerator business.
I happened to attend their AGM in Feb 2016 so I’d like to use this chance to quickly update what I remember based on my memory.
The contract for their refrigeration business are currently in the 2nd year (out of 5 year subject to renewal) and it appears the management managed to negotiate for better contract based on the past 2 years (2016 & 2015) results on improved gross profit margin. While this is an obvious concentration risk investors have brought up, the management are adamant that they will continue to partner because the customer benefits from Nam Lee’s dependence and expertise as much as they depend on them. So it’s a win win situation. In addition, demand for refrigerated seaborne trade has been trending up in the past 10 years and UTC has projected a 2020 outlook increase of 5% CAGR per year.
The company has also moved all of their operations to the factories across Malaysia, Johor Bahru and Pekan Nenas Pontian so this is where they have kept their overhead cost low.
The management has a habit of rewarding shareholders well in terms of dividends on years they do well based on long term past records so I believe they will dish out another special dividends this year should they be able to keep their momentum going towards the final half.
*Vested with 35,000 shares as of writing.