Delong Holdings Ltd (BQO.SI) is a Singapore-listed Chinese manufacturer of billets and hot-rolled steel coils. The company operates currently two steel mills with a production capacity of 3.5m tonnes a year. Its highly customized steel coils are widely used in infrastructure, pipe and machinery fabrication, and in the automotive industries. Almost all of its operations are carried out in China.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”]
Delong Holdings had to shut down one of its steel facility last August, due to China’s overcapacity restrictions and is now actively focusing on other local and overseas investment opportunities. The company has entered in a 45 percent owned joint-venture steel project in Indonesia that is expected to be operational by late 2018. The new facility will have an annual production capacity of 3.5m tonnes with full auxiliary facilities for nickel mining and smelting, as well as stainless steel manufacturing. To further diversify and expand its business, Delong Holdings plans to invest in public and private companies as well as engage as a business incubator.
Delong Holdings was founded in 1992 and is headquartered in Singapore. The shares are listed on Singapore’s stock exchange since 1999. The company’s shares can also be traded in Germany and the US. Major shareholder is the chairman of the company, Mr. Ding Liguo, and his family with an ownership of around 76 percent. 21 percent of the shares are in public hand.
With a workforce of over 3600 employees, Delong Holdings reported revenues of 2.95bn RMB (436m USD) and profits before tax of 330m RMB (49m USD) over the first quarter of 2018. This is a decrease of 1.2 and 24 percent respectively compared to the same period a year ago. In 2017, revenues and profits rose by 30 and 728 percent respectively, mainly due to higher selling prices. The operating margin of 20 percent is well above industry average. Delong Holdings’ cash reserves decreased by 28 percent over the first three months to 1.5bn RMB (228m USD) at the end of March 2018. The company shows a solid balance sheet with satisfactory profitability and financial strength. The equity ratio is at 49 percent and the gearing, defined here as total liabilities to total equity, at acceptable 106 percent. Next results will be announced in early August.
Delong Holdings’ shares are in an uptrend since February 2017 and increased almost twentyfold since, over 110 percent alone this year. The company is priced at 1.6 times earnings, 0.6 times book value and at 1.4 times cash flow only. Delong Holdings pays no dividend since 2009.
Our conclusion: Delong Holdings shows a healthy balance sheet with satisfactory profitability and financial strength. The industry outlook remains moderately favorable for this year with an expected growth rate of around 0.6 percent. The company is well positioned in an intensely competitive environment. Revenues and profits grew by 9 and 170 percent respectively over the last three years. Delong Holdings could surprise with new acquisitions and investments within or outside its core business. Due to the company’s extremely low valuation combined with a strong momentum of its stock price we expect the share price to increase by another 10 to 15 percent until the end of this year.
AIS Rating: ★★★★☆
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 Q1-3 only |
|
|---|---|---|---|---|---|---|
| EPS (RMB) | -0.3 | 0.9 | -3.6 | 1.9 | 18.8 | 2.6 |
| Change | -114% | 468% | -488% | 154% | 874% | -28% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | LIAB./ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 1.6 | 22 | 0.6 | 1.4 | 49% | 51% | 106% | n/a |
* Equity / Total Assets, ** Total Liabilities / Equity
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