Saturday, March 4, 2017

When employees get less than shareholders

When employees
get less than shareholders


I have always find it puzzling each time a public listed company announces its full year result's earnings and decided to pay our more than its actual earnings. Is there anything wrong for the companies to do so?

While shareholders are rejoiced of the dividends knowing the company they invested earned less and yet decided to pay more actually, the same cannot be felt by the employees of that particular company concerned.

Worse still, if the employees' benefits like bonuses are reduced in that particular year.

My good friend working at the Star Media Group Berhad has informed me that the leading English newspaper company has been cutting bonuses over the last  few years in tandem with continuous weakening advertising expenditures.

He said bonuses of five to six months  or even more during the last fifteen years has been reduced drastically especially in the last three years.

Gone were the days when apart from its usual two months bonuses paid in every December, the additional bonuses usually paid in January (just nice for Chinese New Year celebration's expenses) and another one in September (in conjunction with Star's birthday celebration).

During the birthday celebration of Star, employees and ex-employees are treated to a sumptuous buffet spread. One can imagine the enjoyment during the feast knowing a "birthday" bonus is there in the pocket.

That is not all. In between the January and September bonus, it is expected to get another one or two months bonus as well. But all goodies finally come to an end. First its birthday bonus were gone three years ago, then its January's bonus was also gone the following year. Then the final curtain came down when the in-between bonuses were gone as well.

It was replaced by bonus based on individual's key performance index and it is anyone's guess that such system is always welcomed by the employees as individual's  evaluation can be very subjective.

Another freelance writer lamented about his drastic commission reduction for his once or twice articles published in the paper has seen his fee cut by 50%. Reason is his article is no longer in the main paper and has been move to the Metro pages. But a 50% cut is actually a big figure for anyone. Imagine this happening to your income and how are you going to find the motivation anymore?

Further utilisation to the maximum of staff also occurred recently. A sport reporter who has been covering sports has been directed to cover daily happenings as well. This "new directive" is perhaps to save cost as there are days when no major sports events are going on and hence it is better to use the sport reporter. Well, he resigned in apparent of not happy with this so called "new directive."

While all such known cost cutting measures were being carried out in a bid to reduce operation costs, it is utterly puzzling to me that Star didn't preach what it does when it comes to paying out dividends.

For Financial Year 2016, it is paying out a total 18 sen dividends when it actually earned only 14.89 sen. In short, it is over-paying out from its cash reserves which has been dwindling down from RM632 million a year ago to RM499 million as at end of December 2016.

In 2014, it also paid 18 sen dividend when it earned 15.1 sen only. Will such trend of paying more than it earns continues again in the future years for Star?

Meantime, there would be new ways of cost cutting measures being implemented over the times to come for its employees. I just hope it won't come to one day when there would be totally no bonus to be paid out to its employees.

After all, its main print business segment is experiencing a continuous declining revenue and profits over the last few years. To sum it up how tough it is, its Financial Year 2016's normalised earnings dropped by as much as 49.5% compared to 2015.

Coincidentally, the freelance writer's commission also dropped by as much as 50%, an almost identical percentage.


Saturday, February 18, 2017

PBB - One Truly Great Share in Bursa Malaysia

PBB -  One Truly
Great Share in
Bursa Malaysia

If there is a share that most investors will regret for not buying and keeping it  until today, what share would that be? Yes, this is an interesting question and I am sure many investors would start to scratch their heads and think and think.

After all, there are over one thousands companies in Bursa Malaysia and it is definitely not an easy question for an right or wrong answer from any investor.

But if someone were to pose this name one great share in Bursa Malaysia, my answer must be that solid as a rock banking company, Public Bank Berhad. (PBB). A fifty year old company having listed in 1967 (at that time I was just five years old), PBB today is one of Malaysia's biggest banking giant with business spawning throughout many regions in the world.

Just recently PBB reported its 4th Quarterly Result for Financial Year 2017.  It earned RM1.49bil from revenue of RM5.08bil. For full financial year ended Dec 31, 2016, its revenue broke the RM20bil mark underpinned by continued growth in the net interest income and fee and commission income. Net profit increased to RM5.2bil.

Now I am going to say this. I am very poor in Mathematics or even accounting. But when we are talking about revenue in business, am I right to say that it mean all money collected by the company is considered revenue and then it will be used to offset all operating expenses including tax before we derive to the final net profit figure.

If this is so, then its full year net profit of RM5.2bil is something like a 25% margin from its revenue of RM20.1bil. This is considered a very high margin business. Although I or most of the average Joes will never understand the very complicated of banking accounting, but in a simple layer way of looking at it, the profit margins must be tantalising.

Just imagine if you are a air conditioner seller and your profit margin is 25%. Anyway I am most probably wrong because I shall never understand how banking business or its system is run.

PBB also continues to be profitable year after year despite going through several world crisis that sent many other companies to their knees. Its profits continue to ascend steadily and gradually over the years with their prudent management way of running a typical business.

To many Chinese, they see PBB as being managed properly in a China man style of way that will always be safe to put in their money and secured business dealings like taking car or housing loans.

Many customers particularly the Chinese would feel very comfortable and ease to do their banking needs at any PBB banks. Not because they are racist, but because the working culture is very customers friendly.

I am not saying other banks are not customers friendly. They are, too. But the feeling when you step in a PBB bank is you can feel all the staffs are ready on their toes to attend virtually to your needs most of the times.

I know of one particular PBB branch in Bayan Baru where the newly branch head was seen busily assisting in the front counter apart from the occasional moments she has to approve or sign endless documents.

I didn't realise she was a branch head until a customer service staff introduced her to me. When the head is also on the ground actions, you can imagine the motivation feeling of all those under her striving to do even better.

Back to PBB, the remarkable thing is its share price generated immense wealth for those early enough to invest in it.

According to its 2015 Annual Report, assuming a shareholder of PBB had bought 1,000 shares in 1967 and subscribed for all rights issues to date and not sold any PBB shares, his shares would balloon to 148,938 PBB shares worth RM2.7 million based on the share price at RM18.52 at the end of 2015. Total gross dividends received amounted to RM1 million whilst having a capital outlay of RM235,612, including subscription for all rights issues.

How many companies can generate such kind of gigantic returns all those fifty years? In fact, even those late investors investing in any period from year one right up to 2015 would see their investment remaining positive and receiving regular dividends.

Even at this very moment, PBB closed at RM20.00 on Feb 17, 2017. At RM20, it is trading near its new 52-week high of RM20.28.

Why I did not pick up a single PBB shares since I started investing in 1993 is a mystery to me? How could I have missed out such steady company all these while? How could my radar not pick up PBB at all?

Nevertheless I have decided to add banking share to my Basket of Defensive Stocks portfolio. I don't think I have ever bought any banking stock at all in my lifetime if my memory is still vivid.

Buying 4,000 shares of
Affin Holdings Berhad
on Feb 13, 2017 at RM2.49

Affin is a very small banking company that has a fair yield record of paying dividends. It continues to be stay profitable  for many quarters.  At this purchase price, it is not far from its 52-week high price of RM2.57 done on Feb 17.

Well, for the first time ever, my Basket of Defensive Stocks have seen more stocks in positive territory than negative. At closing time on Feb 17, 2017, there are six positive stocks and four negative stocks. But the more pertinent question is did the portfolios makes any return at this stage so far?

Well, I am glad to report that the answer is YES, albeit a mere profit of RM1,140.00.

Friday, February 3, 2017

The Allure of Regular Good Dividends

The Allure
of Regular
Good Dividends

Companies that have a good track record of paying regular dividends (anything between 2% and more) are always an attraction to me. Not that I will necessary invest in them, but at least they would in my radar of attention from time to time.

There are actually too many companies on Bursa Malaysia that fits easily into this criteria of mine. So one has to be selective in choosing certain companies which apart from able to pay this range of dividends, their business must also be sustainable in the long run.

Another good point would be if the company is fundamentally sound with minimal debt or better still zero debt. It would be even more wonderful if the company is loaded with cash as well.

Surprisingly on Bursa Malaysia, many of these companies are actually not  actively traded most of the times. It is like the majority of investors of such companies are not bothered by the daily movements of stocks market.

Rather these investors are just happy and contended enough to receive their regular half yearly, quarterly or yearly dividends. Your truly is one such investor if one is to take a closer look at most of my shares all those years.

The remarkable wonder is such companies become almost free or more than free after a number of years of keeping. Two of my more than decade old stocks, Fima Corporation Bhd (Fimacor) and Harrisons Holdings (M) Bhd, (Harrisons) are more than free shares after leaving them untouched regardless of what happened to the world. Not only that, their current share prices are even higher than my previous purchase price.

Keck Seng (M) Bhd, another asset rich and cash rich company which is currently out of flavour and limelight as well, is another free shares for my spouse after keeping it more seventeen years since Nov 2, 1999. The consistent twice yearly dividends received all those years have more than offset the purchase price of RM1.65. Including the bonus 500 shares received means the current price of RM4.84 is still worth easily RM7.26.

LPI Capital Bhd (LPI) is also another superb regular dividends paying company where the dividends seem to grow more and more each year gradually without investor realising it. Dividends received for Financial Year 2012 to 2015 raised gradually from RM325.00, RM350.00, RM375.00 and RM525.00 respectively. For Financial Year 2016, an interim dividends of RM187.50 was paid on Aug 3, 2016.

LPI has yet to announce its final 4th Quarterly Result by this time which is rather a bit unprecedented in my opinion. In the previous few years, LPI used to the first to announce its Quarterly results in every quarter or the rare occasions, by the second or third week of the month.

Instead its senior siblings, Public Bank Berhad superseded LPI in announcing its 4th Quarter Result on Feb 2. It was a strong expected good results.

Anyway, I am confident LPI will also follow suit with an equally impressive 4th Quarterly Result, anytime to be announced next week. I look forward to another final dividends. The current share price of LPI at RM17.18 on Feb 3 means my 750 shares is easily worth RM12,885.00 when compared to my original capital. What a such good investment although I was a late comer to invest in this wonderful solid company.

My basket of defensive stocks is one typical example where the companies invested are expected to pay regular dividends throughout the years again and again although there is no guarantee of that.

Although most of the share prices are below my original purchase price, but the dividends received since the last one year amounted to quiet a good sizeable amount. But as I have already stated that for easier calculations of how my basket of defensive stocks will perform in the longer run, first year dividends received will not be taken into account to offset the selling and buying brokerages charges. Unless the first year dividends is a rather big amount, it will be taken into account.

To date my basket of defensive stocks have received/qualified for a total amount of RM1,800.00 in dividends. At least this dividends can give me some happy Chinese New Year mini ang pow money to enjoy.

On this happy festival joys, a very Happy, Prosperous and even more important, Healthy Chinese New Year to all of you.

Cheers and Gong Xi Fa Cai!

Monday, January 16, 2017

What a difficult year 2016

What a difficult
year 2016

By the time you are reading this, the year 2016 would have just passed by more than two weeks although memories are still very fresh of what a difficult year it was for most rakyats and of course investors of Bursa Malaysia.

For one, the majority of most stocks closed near its 52-week low or new 52-week low in 2016. Only a marginally small group managed to closed near its 52-week high. For long term investors, the declining stocks prices could only mean a major erosion of paper wealth in their profit and loss account.

It would be even more bitter to swallow especially for those who invested most or major portion of their cash savings in stocks rather than putting in fixed deposit. For those who practised proper asset allocation in investing, the loss is not that much. As Warren Buffet advised : Never put all your eggs in one basket. In fact I like to add in that it is advisable NOT to put the major portion of your eggs in one basket too!

Why did the majority of stocks prices declined to such new 52-week low or near its 52-week low? One must understand that it is always the profits earned that determines the direction of share price. This is the prime mover in my opinion.

Most companies reported lower profits or even loss as at the third quarter of 2016. It was no surprise to me because the economy as a whole was not going well in many quarters.

So when most companies and businesses are not doing well in this subdued economy time, less profits set out chain of an unfortunate dominoes effect of getting less take home pay and thus spending less to cope with rising cost of goods and services.

It is really a double edge sword for almost the whole segment of business and the rakyats. To illustrate how bad businesses are, here are some real life situations I personally experienced or shared by my closed friends.

Cosmetics counters are almost eerily deserted most of the times. The next time you go to the mall, try to observe the dire quiet situations of the cosmetics counters. These counters are normally located together in a big space. But it has been many months since customers started to disappear. 

Even the cosmetics sales consultants started to call or Whatsapp their regular disappearing customers to inform about any promotions or sales going on. During the good days, you won't hear from them at all. Why? They were busy entertaining hoards of customers. Even regular customers must wait for their turns to be served.

A leading supermarket in Penang has seen its cosmetics counters section becoming smaller due to less counters still operating as some have closed down.

At supermarkets, I have noticed that there are now more cases of fruits/essentials placed back after being chosen, packed, weighed and gummed with a price sticker. Obviously the customers must have thought the price was within his/her comfortable range. Only after knowing the price and feeling expensive, decided not to buy and put it back.

This cases are confirmed as I personally spoke to one official of a leading supermarkets who said they are also fed up with this situations happening commonly in a daily basis. It is giving them extra work, and using up more plastics.

Several leading malls in Penang has seen more empty shop lots these days than years back. And some have been empty since last year. 

A good indication of how companies have cut down on expenses is the current Chinese New Year red packets given out. During the good times, red packets packed in 10 were freely given out. But this year, it is not easy to ask for free red packets as most companies have ordered less and hence only given out to those who make some purchases or their regular customers. Even then, the red packets come in 5 or 6 only.

Another clear sign of the slowing economy is the drought of advertisements in The Star. The Star is getting thinner by each days. There are instances where on certain days, there was only one colour advertisement in the first half of the paper. Unlike those days The Star was brimmed with so many colour advertisements fighting for prominent pages even though those who wanted their advertisements on preferred pages must pay extra loading for it.

Admist all these subdued spending, the rakyats are faced with another  in the form of inflations. Prices of may essentials have risen since the late last year.

Many people are lamenting about the expensive prices of so many things.  And there are not much most of us can do other than to spend less and get less or spend more to get the same.

Life indeed will even be tougher in 2017.