CITY, leave town without it.

PaulRen's picture
Company Visit

CITY, for now leave town without it.

I just came back from an near 3 hour drive to Chonburri -and back so to visit CITY STEEL (CITY, 2.02).  It was a wild "goose chase" as the saying goes,  as I spend ½ hours with them, or less then ¼ of the time I spend getting there -and back.   Recent reports in the Thai newspaper stated this company may list 1 or 2 of its subsidaries on the MAI or SET, but this was denied by managment today. This along with its low price to book ratio is why I mentioned the company in our member lounge. I have visited CITY some 2-3 years back and wrote it up here favorably but depending on the time period held, it never went anywhere.

After some initial intrigue, with the caveat I need to check some more, today I did and I am rating CITY with a sell view, because its earnings prospects are and remain uninspiring in the nearer term, this so as the managing director K. Komkrit. This stock has increased from around 1.65, since early June.

The company does have some 210 mill. Baht cash on hand but this will soon be used to replace much of its 15 year old machinery. Such an upgrade will increase CITY’s depreciation expense.  This is one reason why their stated book value is so high, around 2.76 per share.

CITY is on a fiscal year, ending July 31, so its full year results will not come out until mid September.  My sense is with guidance it will continue in not being impressive and instead continue to show an uneventful report. Similar with the current dividend which I see stagnating around current levels of  around 0.11 Baht per share.

While steel sheet prices are down sharply (50%) since record year 2007, the company does not benefit/nor get penalized from this as it prices its jobs’ always with a cost plus policy.

The key reason CITY is not turning around, evenwhile Thailand’s GDP is, is because there is no new investment taking place and so far the resurgence has been mostly export related.  Retail and automotive are more buoyant but again there is no real new investment.  The company is operating only around 60 to 65% of its capacity.

While its always possible the speculators get a hold of CITY and the stock bucks its fundamentals for a while, I took the time to visit them today and so got my views from the “horses mouth”.  Based on this I rate this stock "avoid" for the time being. I do not belive management would mislead me.

Best Regards,

Paul Renaud.