Shanghai Asia

Shanghai Asia

Postby Aspellian » Fri May 23, 2008 9:37 am

SHANGHAI ASIA HOLDINGS LIMITED


http://www.sah.com.sg/

BACKGROUND

The Company was incorporated in Singapore on 18 September 2003 under the name of Caladium Limited and renamed to Shanghai Asia Holdings Limited on 27 January 2004.

The Group is specialise in gravure printing of paper packaging for cigarettes. The Group is among the pioneers using gravure printing in China, focussing on printing paper packaging products for leading cigarette brands of the major cigarette manaufacturers in China. The two types of cigarette packaging that the Group prints are cigarette packs (for packing 20 cigarette sticks) and cigarette cartons (for packing 10 cigarette packs).

The Group's customers are mainly leading cigarette manufacturers in China and include Shanghai Tobacco Group and Nanjing Cigarette Factory. Five of the six major customers of the Group are among the 36 key cigarette enterprises identified and fostered by the State Tobacco Monopoly Administration of China, a regulatory authority of China cigarette industry.

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Re: Shanghai Asia

Postby Aspellian » Fri May 23, 2008 9:39 am

Exciting phase for Shanghai Asia
BT

SHANGHAI Asia Holdings (SAH) is at an exciting phase of its development right now. Executed well, and things can become quite interesting from now on.

Currently, the bulk of its earnings is from the printing of paper packaging for the cigarette industry in China.

The business is a lucrative one. Gross margin is a fat 35 per cent, and operating profit margin is at 29 per cent in the first half of this year.

Cash flow from operations averaged just under $19 million a year over the last three years. Return on equity was about 24 per cent for the last financial year.

As the group's chief financial officer Tung Kum Hon puts it, the barriers to entry in the business is not the machinery. Capital investment is not huge. But it is the relationships with the cigarette companies which allow one to be in the business. The Liu brothers, who built up and are still playing key roles in running the business, have been in the industry for some 20 years.

But while the business continues to yield good returns, growing it is a challenge.

Since China's entry into the World Trade Organization in 2001, and particularly since the beginning of 2004, the Chinese government has been encouraging the numerous cigarette companies to consolidate in order to stay competitive against foreign rivals. The consolidation has seen the number of cigarette brands plummet from more than 1,800 to less than 400 in the past five years.

As some of the brands printed by SAH were discontinued, its revenue, too, has been hit.

So at best, the paper printing business is a cash cow. Which was why the group diversified into a new business - a thin gauge aluminium rolling mill - in 2005, in which it holds a 46 per cent stake.

In the words of the group's chairman John Cambridge: 'We are moving from an economy of scope business which gives us a gross profit margin of 30-plus per cent, to a volume business with gross margin of 10 per cent.'

But the move will open up opportunities for SAH to get into the packaging business for food stuff, electronics and pharmaceutical products.

'This gives us the opportunities to get out of the cigarette industry, into the high growth arena of fast moving consumer goods. We've got to go down to the consumer chain for the high margin.'

From a green field just two years ago, the mill has up till last month churned out 6,000 metric tonnes (MT) of aluminium foil, with thickness ranging from six to nine microns.

According to chief executive Liu Jian Zhong, the mill breaks even at 967 MT per month. So at an average production of 1,000 MT per month now, the mill is already profitable. For the six months to June 30, 2007, it recorded a small profit of 7.3 million yuan on a revenue of 163 million yuan.

The mill's output is targeted at 12,000 MTs for the whole of this year. This will be ramped up to 25,000 to 30,000 MTs by the next financial year.

The US$55 million mill has a full capacity of 25,000 MTs. Another 20,000 MTs capacity will be added by the end of this year at a cost of 100 million yuan ($20 million). Currently, about 70 per cent of SAH's aluminium products are exported.

At a market cap of $124.3 million, SAH is valued at about nine times its last year's printing business. This excludes the aluminium business, which if executed well is poised to contribute more significantly going forward.

Of course, the aluminium business is still in its infancy, and a lot more nurturing in terms of financing and business development is required.

The share price now is amply supported by the printing business, which provides shareholders with a dividend yield of about 5 per cent. So any upside from the aluminium business will be an extra bonus.

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Re: Shanghai Asia

Postby Aspellian » Fri May 23, 2008 9:39 am

I attended the shanghai asia egm, will like to share with you guys the key observations.

anyone else in this forum attended?
__________________________________________________
there was a bit of active discussion on how confident management is of the
vendors that JZLM (the target company) in meeting the targeted profit of
RMB80m in 2008, 2009 and 2010.

the Chairman (john cambridge), keep on assuring shareholders that they have done their due diligenence and is confident of the CEO to deliver the
target. he himself reviewed a very detailed budget forecast.
its highlighted to shareholders that a major competitor took 5 yrs before the aluminium factory break even and record profits but JZLM has a small profit of 10m in the first yr of operations which is highly commendable and speak highly of the quality of the management team.

this is a volume base production business. the fact that not many competitors enter into this market is because of the precision required as its not easy to earn high profits in this business because of high wastage in easy breakage of aluminium and difficulty in manufacturing and customising. Because of this reason, the management do not forsee more competitors coming into the market. in fact by setting up JZLM, it is now the 2nd largest aluminium foil producer in China. so capex investment alone is not a determining factor, but rather skilled management who is confident to put in the efforts to develop the business.

the CFO gave an example that with 27,000 tons of aluminium production
forecasted for 2008. price of USD 4k/ton = RMB28k/ton = RMB756m. with a 10% net margin, it will be close to RMB 75m. which is close to the targeted
RMB80m. note that they can pass on the cost of raw material price increase to customers.

current capacity - 25,000 tons - 2 german machines
May 08 - additonal china machine prob 10,000 tons
Aug 08 - one more china machine 10,000 tons

reason why they buy china machines is because its cheaper and they can do more simple orders. the german machines can do more higher value added (lower microns).

Mgt is confident that the market potential is huge (be sceptical though as businessman usually v v optimistic). currently 20% of the aluminium business is from the tobacco/ new toyo (ultimate holding). remainder is from consumer packaging companies.... they mentioned bout fresh milk packaging being a key end product (e inner side of the package is aluminium).

key take-away
- the board/chairman is interested in shareholders' interests and will like
to grow the company prudently. he promise to shareholders that dividends of 50% profits will not be cut.
- tobacco printing business is the cash cow and will help sustain the new
expanding business esp. in paying down the debts of JZLM
- long term prospects can be good

i also asked the CFO on icapital's investment. he said icapital did have a
discussion with them prior to their investment but he says prob icapital
purchase the shares through nominees so not shown up. Note that icapital is a fund manager in msia. (msia warren buffet....)

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DELIGHT, DISCIPLINE, DILIGENT, DETERMINATION, DESIRE

"Its not whether you're right or wrong thats important, but how much money you make when you're right and how much you lose when you're wrong." - Warren Buffet
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Re: Shanghai Asia

Postby Aspellian » Mon Nov 15, 2010 11:02 am

Hi there,

I haven keep track of Shanghai Asia Holdings (SAH) for a long time... (sold off all shares). But recently there's some interesting developments.

Finally results are showing for SAH after 2 years of operational pains. They have diversify their income from cigrattes printing to aluminium foil related biz. heavy investments in capex seems to be paying off.

But SAH recently announced that they are selling their biz to undisclosed parties (maybe related??). Not only that, the independent Chairman of SAH (mr cambridge) was forced to resign (from announcements 2 -3 months back) because of verbal abuse to the BOD?? then recent official announcement that he stepped down because of long term illness.... hmmm... board room arguements?

firstly, from my only experience with the Chairman, he seems quite a decent ang-moh, the type that keeps his promises and doesnt mince his words and always wanting to act in best interest of shareholders (his corporate background is from Cerebos, which is a slow and steady and shareholder friendly company - also working with ethical old-school Japs not easy (board of Cerebos)). add that to the Liu Chinese family plus New Toyo management (my impression being shrewd SME mgt). there will surely be sparks.

So why the flare-up and combustion? probably because SAH finally turning the corner, Revenue and Profits up >30% and diversify from risky cigarettes customers.... but then disappointing "loyal" shareholders who have been with the company ups and downs waiting for SAH to deliver on its promise by selling away its core biz??

Now the board is made up of the Liu Family including the son (new addition recently - being special assistant to the CEO - good family succession plan!). so prob now the company not so much of a friendly shareholder company.

FOr the investment part - is it still worthwhile to invest? hmm... i am torn really. cos fundamentally it seems sound with growth element. but recent boardroom tussle means that the (ex)Chairman tried but failed to protect shareholders interest (or is it really the case?). so will there be high premium like Peter Lim paid for Thomson? unlikely.

On another view is that the Chairman is gone, so the company can finally do its own things without obstacles. Interesting to note that share price went up from 0.14 to 0.19 - so good fundamental performance do result in higher share prices. 0.18 seems to be a resistance turned into a base price. market now uptrend under pressure, so may not be the best time to buy shares. also not sure whether the dividend policy of giving 50% of dividends will be change (as this policy is promised by Mr ex Chairman).

but its worth putting SAH on radar and see what corporate developments that it has. and when the next uptrend comes, and when volume is good, probably good to take a punt.

PS: above comments are gibberish based on impressions made from zero research and simply reading of headlines and no detailed reading...

PROMISE, PASSION, PEACE, POWER, PURPOSE, PLAN, PATIENCE, PERSEVERANCE, PROTECTION
DELIGHT, DISCIPLINE, DILIGENT, DETERMINATION, DESIRE

"Its not whether you're right or wrong thats important, but how much money you make when you're right and how much you lose when you're wrong." - Warren Buffet
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Re: Shanghai Asia

Postby kennynah » Mon Nov 15, 2010 11:09 am

firstly, from my only experience with the Chairman, he seems quite a decent ang-moh, the type that keeps his promises and doesnt mince his words and always wanting to act in best interest of shareholders (his corporate background is from Cerebos, which is a slow and steady and shareholder friendly company - also working with ethical old-school Japs not easy (board of Cerebos)). add that to the Liu Chinese family plus New Toyo management (my impression being shrewd SME mgt). there will surely be sparks.


bad combination...chinese owners and a western ceo.... recipe for disaster in the long run...

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