Sunday, May 29, 2011

AEI Corp (AEI SP) - May 2011 updates

Hi all, 

Apologies for the delay in updates for this one. This is a really small position for myself but is no excuse to not keep up to date with. I will have to decide whether to up it or to pare it soon.

  • FY results, profits halved from $8.5 to $4.1m with a topline rise of 19% and COGS of 43%
  • Cash went from $33m to $22m largely due to 
    • dividends paid out of $7.8m and capex for the new auto plant of $4.7m
    • Debt is now $1m and finance leases of $1.8m 
  • Firm bought back $1.6m worth of shares from the market as well
  • Cheaper imports and rising S$ continues to tighten margins
  • Precision engineering and electronics is still the main business core vs. construction
  • Aluminium prices, labor costs are the main costs 
  • The new China Auto plant is pending approval and estimated to start in 2H 2011.
  • There was a weakness in prices when the auditors issued a qualified opinion on the firm 
  • This is in relation to the convertible bond to M2B of $3.2m covering over $200m of assets
  • M2B has entered into several agreements, one of which to Qtrax, the world's largest free legal music site, major in China, Indonesia and Malaysia. 
  • Im confident the loan is well covered and AEI is adopting a wait and see attitude to loan conversion
  • I am also not bullish on the new venture, which requires a gestation period and probably works on monetizing ad revenues while allowing users to connect and download free music/videos. Anyway, if venture fails, M2B fails, AEI will have a very high chance to get back the $3.2m in cash.
  • If M2B becomes wildly successful, AEI will convert to equity and participate in M2B, bringing in new cashflows. 
  • In whole the qualified opinion is definitely not negative and price decline is unwarranted
  • I will wait for results of the new China plant to decide if I should make any changes to the position. 
"To make large returns from a small capital base, you need to be a plunger."

Disclaimer: Author owns shares in AEI Corp



Still nice material.

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