• Revenue was 5.1% lower than forecast, but PATMI was in line
• 2 cents final ordinary dividend (FY17: 1 cent); and 0.5 cent special dividend (FY17: 1 cent) proposed
• Total full year dividend of 2.5 cents is higher than 2 cents for FY17; and gives a 6.7% yield based on last close price of 37.5 cents
• Nam Lee’s 6.7% yield on an unlevered balance sheet is superior to the STI and S-REIT Index yields of 4.2% and 6.2% respectively
• Ceasing coverage due to reallocation of internal resources

The Positives

• Aluminium segment continues to drive revenue growth. We believe this is attributable to the industrial product of aluminium frames for container refrigeration units. As disclosed in the 3Q 2018 earnings presentation by United Technologies (NYSE: UTX), commercial sales for its Transport refrigeration segment was “up low teens” on a %YoY basis. (United Technologies’ refrigeration business unit is Nam Lee’s core customer.) We had commented in our previous report (Aug. 8) that demand for refrigerated containers remains relatively resilient, even with escalating trade tariffs.
• PBT margin lifted to 10.0% from 8.8% last year, due to lower other operating cost. 60% YoY lower other operating cost was mainly due to the absence of provision in FY17 for product replacement costs for a prior-year building product project. For context, PBT margin was 9.7% and 10.5% for FY15 and FY16 respectively. As such, we think that PBT margin should be maintained at a similar level (~10%) in FY19.
• Final ordinary dividend raised to 2 cents. The final ordinary dividend has historically been consistent at 1 cent for the past 10 years since FY08, with the special dividend ranging between 0.5 cent and 1.5 cent. Barring unforeseen circumstances, we believe the ordinary dividend component would be maintained at 2 cents for FY19 as well. That translates to a 5.3% yield based on the last close price of 37.5 cents.
• Clean balance sheet with cash hoard. Net cash (cash less total borrowings) of S$43.4mn represents 48% of market capitalisation. We continue using the current-asset value (current assets less total liabilities) of 38.5 cents/share to demonstrate the limited downside risk.

Outlook

According to Management, the aluminium industrial product business is expected to be negatively affected, due to the uncertain global economy. The building product business is expected to face margin pressure arising from intense market competition, continuing government cooling measures and a tight labour market in Singapore.

Ceasing coverage

Our most recent rating from our Aug. 8, 2018 report, was “Buy” with target price of $0.51. We are ceasing coverage on this counter due to reallocation of internal resources.