Friday, January 04, 2008
Housekeeping: What to do with those losers? part iii
I hope this series won't turn into a regular feature of this blog!
(3) VSC - down 13% from $0.98 in Jan 07
I suggested 5 industrial stocks one year ago in Jan 2007 and labelled them as underdogs. VSC turned out to be the real dog of the dogs, as it's the only money loser!
I knew VSC was the most speculative among the dogs and its performance, both share price wise and earnings wise, unfortunately lived up to its reputation. It rose from under 98 cents last Jan to over $1.8 in June, but by the end of the year it's retreated back to 85 cents. Earnings in FY07 showed substantial improvement at $71m (inclusive of one-time gain from selling a 40% stake of its coil business to Ryerson), but in FY2008 interim earnings deteriorated by 50% to $21m.
VSC's coil business in China and construction steel business in HK was both hit by negative policy change in China. But I won't bore you with the details. VSC as a pure commodity processor and distributor with no size advantage, has an inherently unstable business model because it has no control over the volatitivity of upstream pricing nor influence over its product pricing. Its past 5 years' results (2003-2007) were clear indication of this instability: 60m, 81m, 36m, 23m, 71m.
But VSC's attraction lies not on its own but with its joint venture with Ryerson, the #1 U.S. company in steel processing and distribution with annual sales of US$5.8 billion. I had expected Ryerson would bring forth new businesses and technical know-how to help VSC grow into a much bigger player. The effect has not been apparent yet after one year of integration and logically market enthusiasm faded.
What I didn't know (what a shame to me!) was that during this period Ryerson management was in a big fight, with a hedge fund who criticized them for lack of performance and wanted to overhaul the whole board. The management eventually found their way out by selling Ryerson to another private equity fund in July last year while taking the golden parachute themselves (i.e. getting handsome compensation from the buyer). Now there's a new CEO and Ryerson, as in usual after a takeover, is loaded with debt and in cost cutting mode. The fate of its China venture with VSC is unknown.
It's time to get out of VSC, it's valuation is still cheap, or even cheaper than one year ago, but for good reasons. I'll sell on rebound unless there's positive development from Ryerson side.
DISCLOSURE: I hold 1001 at time of writing.
(3) VSC - down 13% from $0.98 in Jan 07
I suggested 5 industrial stocks one year ago in Jan 2007 and labelled them as underdogs. VSC turned out to be the real dog of the dogs, as it's the only money loser!
I knew VSC was the most speculative among the dogs and its performance, both share price wise and earnings wise, unfortunately lived up to its reputation. It rose from under 98 cents last Jan to over $1.8 in June, but by the end of the year it's retreated back to 85 cents. Earnings in FY07 showed substantial improvement at $71m (inclusive of one-time gain from selling a 40% stake of its coil business to Ryerson), but in FY2008 interim earnings deteriorated by 50% to $21m.
VSC's coil business in China and construction steel business in HK was both hit by negative policy change in China. But I won't bore you with the details. VSC as a pure commodity processor and distributor with no size advantage, has an inherently unstable business model because it has no control over the volatitivity of upstream pricing nor influence over its product pricing. Its past 5 years' results (2003-2007) were clear indication of this instability: 60m, 81m, 36m, 23m, 71m.
But VSC's attraction lies not on its own but with its joint venture with Ryerson, the #1 U.S. company in steel processing and distribution with annual sales of US$5.8 billion. I had expected Ryerson would bring forth new businesses and technical know-how to help VSC grow into a much bigger player. The effect has not been apparent yet after one year of integration and logically market enthusiasm faded.
What I didn't know (what a shame to me!) was that during this period Ryerson management was in a big fight, with a hedge fund who criticized them for lack of performance and wanted to overhaul the whole board. The management eventually found their way out by selling Ryerson to another private equity fund in July last year while taking the golden parachute themselves (i.e. getting handsome compensation from the buyer). Now there's a new CEO and Ryerson, as in usual after a takeover, is loaded with debt and in cost cutting mode. The fate of its China venture with VSC is unknown.
It's time to get out of VSC, it's valuation is still cheap, or even cheaper than one year ago, but for good reasons. I'll sell on rebound unless there's positive development from Ryerson side.
DISCLOSURE: I hold 1001 at time of writing.
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thks for detail commentary..
in fact, also pay attention #1001 for years.
營業額增加...19.06% 至 27.88億元。
==> better than expectation
However, noted that the profit drop is mainly due to HK steel trading -lower profit margin during the period.
Per P.15 of report:
http://main.ednews.hk/listedco/listconews/sehk/20071214/LTN20071214431_C.pdf
seem existing case just like 2 years ago:
before, the company with long-term fix contract - as such.. profit margin also suffer as the purchase cost of steel increase a lot. Afterwards, HK-steel trading profit margin recover in coming yr.
Now, this happen again but afftect the short-term contract due to the unexpected China Gov's steel export tax change. Belive that the profit margin will rebound to normal level as this time , we are talking about short-term contract.
further review # 1118 高力集團 's recent interim result - profit margin drop due to the same reason as above.
http://main.ednews.hk/listedco/listconews/sehk/20070919/LTN20070919350_C.pdf
anyway, the co's CAMP & * CMG rev keep increasing in recent year. Expected yearly turnover would be around 55 億 !
* 施政報告中提到的十大建設中政府開支佔2500億元，另外加上私人投資。
1% of gross profit margin improvement is talking about 0.55 億 less 17% proit tax, i.e. 0.45 億 or EPS of $ 11.8 c
2% of ..............................................................................................................................or EPS of $ 23.6 c
says , just 2% profit margin rebound - EPS will be 5.6 c + 23.6 c = 29.2 c.
Then, PE will drop to 4.1 (vs existing market price of $ 1.2)
If market price drop to $ 1, PE will be 3.4
Now, net asset per share is $ 2.11 - i.e. P/B is 0.57 (vs existing market price of $ 1.2)
If market price drop to $ 1, P/B will be 0.47
in fact, also pay attention #1001 for years.
營業額增加...19.06% 至 27.88億元。
==> better than expectation
However, noted that the profit drop is mainly due to HK steel trading -lower profit margin during the period.
Per P.15 of report:
http://main.ednews.hk/listedco/listconews/sehk/20071214/LTN20071214431_C.pdf
seem existing case just like 2 years ago:
before, the company with long-term fix contract - as such.. profit margin also suffer as the purchase cost of steel increase a lot. Afterwards, HK-steel trading profit margin recover in coming yr.
Now, this happen again but afftect the short-term contract due to the unexpected China Gov's steel export tax change. Belive that the profit margin will rebound to normal level as this time , we are talking about short-term contract.
further review # 1118 高力集團 's recent interim result - profit margin drop due to the same reason as above.
http://main.ednews.hk/listedco/listconews/sehk/20070919/LTN20070919350_C.pdf
anyway, the co's CAMP & * CMG rev keep increasing in recent year. Expected yearly turnover would be around 55 億 !
* 施政報告中提到的十大建設中政府開支佔2500億元，另外加上私人投資。
1% of gross profit margin improvement is talking about 0.55 億 less 17% proit tax, i.e. 0.45 億 or EPS of $ 11.8 c
2% of ..............................................................................................................................or EPS of $ 23.6 c
says , just 2% profit margin rebound - EPS will be 5.6 c + 23.6 c = 29.2 c.
Then, PE will drop to 4.1 (vs existing market price of $ 1.2)
If market price drop to $ 1, PE will be 3.4
Now, net asset per share is $ 2.11 - i.e. P/B is 0.57 (vs existing market price of $ 1.2)
If market price drop to $ 1, P/B will be 0.47
in fact, the selling pt of #1001 is mainly focus on the core 'HK steel trading business' which should be benefit fr:
* 施政報告中提到的十大建設中政府開支佔2500億元，另外加上私人投資(assume 500 億), i.e. total 3000億 .
Assume all 建設 will start in coming 7 yr, i.e. av 428 億 per yr + 300 億 per yr now ==> 728 億 per year ,i.e. up by 142%
- which will benfit the co. starting the coming year as she is the market leader.
* 施政報告中提到的十大建設中政府開支佔2500億元，另外加上私人投資(assume 500 億), i.e. total 3000億 .
Assume all 建設 will start in coming 7 yr, i.e. av 428 億 per yr + 300 億 per yr now ==> 728 億 per year ,i.e. up by 142%
- which will benfit the co. starting the coming year as she is the market leader.
i also followed VSC on and off for a long time, starting since the last repurchase offer a few years back. performances have been erratic, esp if you compare it against the other 4 industrials i suggested. i won't fault the management as even the best management can do little when the industry sucks.
downstream steel market in China is a mess (i'm also worried the closure of a lot of small factories in the south will affect VSC more), while doing business with HK developers is never easy.
for small caps where there's no size advantage, my investment criteria is there's either a compelling story behind or good track record. VSC is a story stock. it may have a good ending eventually but one have to weight it against the time of waiting and make decision accordingly.
having said this, since stock turnover is so low, price can go up or down a lot with just rumours, but that's speculation.
downstream steel market in China is a mess (i'm also worried the closure of a lot of small factories in the south will affect VSC more), while doing business with HK developers is never easy.
for small caps where there's no size advantage, my investment criteria is there's either a compelling story behind or good track record. VSC is a story stock. it may have a good ending eventually but one have to weight it against the time of waiting and make decision accordingly.
having said this, since stock turnover is so low, price can go up or down a lot with just rumours, but that's speculation.
find this for sharing:
万顺昌高新材料(昆山)有限公司
http://vscryerson.cn.alibaba.com/athena/companyprofile/vscryerson.html
近年来，万顺昌的规模不断扩大，Metalchina中国金属、
a8酒店
新成立的昌裕物业公司
为万顺昌的进一步发展开拓了新的业务方向。
万顺昌高新材料(昆山)有限公司
http://vscryerson.cn.alibaba.com/athena/companyprofile/vscryerson.html
近年来，万顺昌的规模不断扩大，Metalchina中国金属、
a8酒店
新成立的昌裕物业公司
为万顺昌的进一步发展开拓了新的业务方向。
find 2 news for inform.. how would u comment the follows ? thks in adv..
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http://www.telegraphindia.com/1080123/jsp/business/story_8814918.jsp
Ryerson’s Chinese venture — VSC-Ryerson China Ltd — where Munoz is also the chairman, will go for a public float earlier.
Tata Ryerson is expected to post a turnover of Rs 1,200 crore this year, its 10th year of operation. It will handle 1.2 million tonnes this year, which is expected to touch 2 million tonnes by 2010.
Sandipan Chakravorty, managing director of Tata Ryerson, said the company could post a turnover of Rs 2,000 crore by then. Within a year of its formation, the Chinese company, however, has generated business worth $300 million or Rs 1,200 crore. Munoz said the target was to be a $1-billion (Rs 4,000 crore) company in five years
Chinese JV
Munoz also hinted at the possibility of Ryerson’s Chinese and Indian ventures jointly setting up facilities in Southeast Asian countries such as Thailand and Vietnam.
==============================
There could be a possibility of a separate joint venture company to invest in Asian countries except India and China," Frank Munoz, chairman and director to Tata Ryerson and president & CEO to VSC-Ryerson China said here.
He said that the matter was in the initial stage, but exchange of talent between the companies was an important beginning toward a new association
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http://www.telegraphindia.com/1080123/jsp/business/story_8814918.jsp
Ryerson’s Chinese venture — VSC-Ryerson China Ltd — where Munoz is also the chairman, will go for a public float earlier.
Tata Ryerson is expected to post a turnover of Rs 1,200 crore this year, its 10th year of operation. It will handle 1.2 million tonnes this year, which is expected to touch 2 million tonnes by 2010.
Sandipan Chakravorty, managing director of Tata Ryerson, said the company could post a turnover of Rs 2,000 crore by then. Within a year of its formation, the Chinese company, however, has generated business worth $300 million or Rs 1,200 crore. Munoz said the target was to be a $1-billion (Rs 4,000 crore) company in five years
Chinese JV
Munoz also hinted at the possibility of Ryerson’s Chinese and Indian ventures jointly setting up facilities in Southeast Asian countries such as Thailand and Vietnam.
==============================
There could be a possibility of a separate joint venture company to invest in Asian countries except India and China," Frank Munoz, chairman and director to Tata Ryerson and president & CEO to VSC-Ryerson China said here.
He said that the matter was in the initial stage, but exchange of talent between the companies was an important beginning toward a new association
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