Asia Enterprises Q1 2008 Results

ASIA ENTERPRISES HOLDING LIMITED
(extract from the Company's Q1 results announcement)

Group revenue rose 35% to S$54.6 million for the three months ended 31 March 2008 (“1Q08”) on the back of an increase in sales volume and higher average selling prices compared to the corresponding period in FY2007.

Distribution costs and administrative expenses rose at a slower pace than Group revenue in 1Q08. Distribution costs, which include freight charges related to export orders, rose 23% to S$0.4 million in 1Q08, while administrative expenses were higher at S$2.5 million, an increase of 17% from 1Q07.

Net profit rose 17% to S$5.2 million in 1Q08 as the Group benefited from a lower effective tax rate due to its entry in the Global Trader Program for a period of three years from FY2008 onwards. As a result, the Group registered a respectable net profit margin of 9.5% for the financial quarter under review.

Cost of sales (measured on a weighted average cost basis) rose 40% year-on-year in 1Q08, which outpaced the Group’s revenue growth of 35%. This was due primarily to higher replacement cost of inventory as the Group has continued to replenish its stock level amid rising global steel prices, as well as the increasingly competitive conditions in the steel distribution industry.

The Group also continued to capitalise on the increased opportunities in Singapore’s construction sector and raised the revenue contribution from this customer segment to 12% in 1Q08, as compared to 4% in the same period a year ago.

Sales to other stockists and traders also increased during 1Q08 to account for 14% of Group revenue. The remaining 11% of Group revenue came from customers in the engineering/fabrication, manufacturing, precision metal stamping and other sectors. Sales to Malaysia remained stable at 6% of Group revenue in 1Q08. The Group continued with its efforts to make inroads into other potential markets in Asia Pacific region, which contributed to the remaining 6% of revenue in 1Q08.

Global steel prices have continued on a sustained upward trend during 1Q08 due primarily to the rising cost of steel production and firm steel consumption by industrial end-users. As a result, the Group benefited from the higher average selling prices of its steel products in 1Q08 compared to 1Q07, as well as gained from continuing orders from its customers in the Asia Pacific region.

In addition, the sales mix with respect to products and customers was different in 1Q08, compared to 1Q07. In 1Q08, the Group sold greater quantities of shipbuilding plates, which are fast-moving items. The Group also recorded a higher revenue contribution from customers in the construction and stockists/traders segment during the quarter under review.

As a result, the Group’s gross profit margin was lower at 16.1% in 1Q08, compared to 1Q07, which is within the range of 15% to 20% that the Group has achieved over the past three financial years.

By geographical market, sales to Indonesia rose to account for 54% of Group revenue in 1Q08, spurred primarily by the higher level of shipbuilding and marine-related activities there. Sales to the Singapore market declined marginally to form 34% of 1Q08 Group revenue, compared to 48% previously. This is in line with the shift in offshore and marine-related activities from shipyards in Singapore to Indonesia. However, this was partially offset by buoyant sales to the construction industry in Singapore.

With the shipbuilding and marine-related sectors as its primary focus, the Group saw sales to customers in these sectors increase by 36% to S$34.6 million in 1Q08. This customer segment continued to dominate the Group’s revenue with a contribution of 63%.