Some notes on the full year financial report released last week:

1. Sysma’s FY18 profit came in at $4.0 mil, which was below its half year profit of $4.3 mil, meaning that it likely recorded a loss for 2H18. The main culprit was a non-recurring provision for defective work of $3.8 mil which we assume was for its property development projects.
2. Revenue continued to decline as expected to $75.2 mil. Out of this, about 60% or $42.6 mil was from property development and the rest from construction.   
3. With the bulk of its property projects fully sold and delivered, leaving behind only 4 shop units at 28 RC Suites, expect the group’s revenue for next year to be closer to this year’s construction revenue of $32.6 mil. The current construction order book of $56.7 mil should be sufficient to ensure this as all but part of the recently clinched Verandah Residences contract will be fully recognised next FY.
4. Company’s cash hoard continues to build up. It now has $71.5 mil or 28.3 cts per share in net cash and zero bank loans. NTA, which is essentially 100% cash backed, is at $52.6 mil or 20.9 cts per share.
5. Company declared a dividend of 0.8 cts per share which was 60% higher than last year’s 0.5 cts. At the last traded share price of $0.151, dividend yield is at a pretty decent 5.3%.

Sysma’s proposed dividend payout was higher than last FY but disappointing given the huge cash pile it sits on. The company can definitely afford a much higher payout of more than 1ct with perhaps an additional special dividend. Since neither materialised, we can only surmise that the management has much better uses of the financial resources at its disposal.

Going forward, the likely catalysts will probably be in the form of additional contract wins and earnings accretive investments the company can net with its war chest. In the meantime, the stock remains almost comically undervalued, trading at a 28% discount to its 100% net cash backed NTA.  

Last week’s full year results announcement was a welcome relief for Hupsteel shareholders as it probably confirmed that the worst is over for the Company. The improved performance was driven by increased demand for its steel products induced by a higher and more stable oil price. Some key highlights:

1. FY18 revenue of S$60.8 million represents a topline growth of 22% over FY17, the first upturn since FY2012.
2. Profit after tax of S$4.7 million is also a multi-year high, although it was aided by a net gain on investment property of S$2.3 million as well as certain tax credits.
3. Management’s decision to declare a final + special dividend of 2 cts per share brings total full year dividends to 4 cts, more than any in the past 3 years. Current yield stands at a respectable 4.6% based on a closing price of S$0.865.
4. However, amidst the positive news, the company also cautioned that its recovery could be weakened by the ongoing trade war and a stronger US dollar.

​Our Take
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Interestingly, at last year’s AGM, some shareholders complained that the dividend payout of 2 cts per share pales in comparison to the 5 cts which Hupsteel used to pay up until FY14. The management, in doubling this year’s payout to 4 cts, perhaps gave the clearest indication that it has paid heed to them. We are of the view that the Company would restore its dividend to 5 cts in the near to mid future should the macro environment hold up. 

​As we have stated in our original post, our investment thesis for Hupsteel has always been the deep discount it trades to the value of its cash, available for sale investments and investment properties. That has not changed. We remain optimistic that the current CEO will continue to take a proactive approach towards unlocking the substantial value of its investment properties and narrow the said discount. While waiting for that to happen, it certainly doesn’t hurt if the company decides to at least maintain its dividend payout going forward, as it should.