Straits Trading Review --> Balance sheet and Interest Coverage not strong

2 Main divisions: Property development/investment and Tin smelting

Income predominantly comes from property development and recurring income from its property investment portfolio which includes:

1) 20% of ARA management ($ 80B portfolio)
2) 90% Straits Real Estate
3) 30% Far East Hospitality Group
4) Freehold land from their existing smelting plant to be redeveloped. Near prime location at Penang

Company initially was net cash position 5 years ago but with its investment in various assets, the company is now in net debt position with debt to equity ratio of close to 40% and interest coverage < 5x on a profit before tax basis. $27M interest expense vs $100M profit before tax.
However, based on cash flow statement, the actual finance cost paid is 14M versus operating cash flow of 12M. The base business is not cash flow generating enough. There is dividend payout from associates but the coverage is <5x.

Majority of its revenue still comes from its tin mining and smelting division. only 5% comes from property. It is receiving dividend and interest income of $30M per year. The company is very sensitive towards commodity price in view of its large exposure to the tin industry.

Tin revenue is 430M vs cost of 380M with gross margin of 50M which is ~10%. Essentially, very thin profit margin available for this business. Any time may swing into loss and impact the whole business.

5-6% of dividend yield from its investment securities and 3% from its investment properties.
Cash on hand is 245M vs current debt of 247M and long term debt of 617M and total equity of 1.6B

There is a reason why market is valuing them at ~40% discount to their NAV of 3.6 and market price of 2.2. Probability not a good time to buy now though company is actively buying back their shares indicating their confidence in the business.

We would prefer a company with lesser debt and higher coverage ratio to fill comfortable especially in current market trend with overprice equity and low interest rate environment. Company may make loss and unable to pay dividend and leading to large price drawdown.

Wait and KIV.