Apollo vs Hup Seng

Apollo vs Hup Seng

I must confess I loved this One Good “Seng” stock called Hup Seng Industries Berhad. Otherwise, it would not have been the number one stock I chose to feature in my maiden blog on July 21st 2013.

Every time I enter the supermarket or hypermarket with my spouse for shopping, my eyes will surely look out for the Hup Seng biscuit counter and observe the passing shoppers’ reaction when they are near the Hup Seng biscuit counter. Normally, there must be some shoppers picking up one or two packages of the biscuit!

The cream cracker biscuit (Hokkien people called it “kiam piah”  or salty biscuit) is a very big business fiercely fought amongst by the several biscuit companies in Malaysia. If you want to know how competitive it is, I can tell you that at the biscuit counter at one big hyper market in Penang, a potential cream cracker customer would be confronted by a big list of eye-cathing brands, i.e. Jacobs, Hwa Tai, Munchy’s, Tiger, Julie’s, Lee Biscuits and the hyper-market’s own-in-house brand.

Indeed it is remarkable for Hup Seng to do so well consistently during the last several years when one sees the very stiff competition the cream cracker biscuit business is.

On November 21st 2013, Hup Seng announced a Proposed Share Split and a Proposed Bonus Issue at a later date to be determined. This cash rich biscuit maker can afford to do so. The announcement has a big immediate impact on its share price the very next day. Investors chased after the stock after the opening bell on November 22nd and sent its share price to an all time record high of RM6.40 before profit taking set in to allow the stock to close at RM6.18.

Seriously, the writer was pleasantly surprised by this aggressive surging share price. After all, do you think honestly that a Proposed Share Split and a Proposed Bonus Issue really make a difference? I really don’t know. Maybe the investors know better than I do.

Well, Hup Seng isn’t the only consumer stock to enjoy the share price rally. Another quiet consumer counter, Apollo Food Holdings Berhad has also seen its sharing price rallying to new and newer highs every few days.

Regular readers would have noticed that Apollo was featured in my blog on October 7th 2013. At that time, the price was at RM4.80. Since then, it has appreciated by almost 15% to RM5.50 at the time of writing on November 27th.

Both these counters’ rally prompted the writer to make if possible a fair way of  comparing Apollo with Hup Seng. Can we really compare them? Apollo is obviously the King of layer cakes maker in Malaysia apart from its waffles and swiss rolls whereas Hup Seng is more famous for its delicious cream cracker.

If you want to know how popular the products of Apollo are, take a stroll to the supermarket/hyper-market to observe and you will find that Apollo’s products command a very big and premium space on the shelf compared to its competitors Oriental Food Industries from Melaka and London Biscuits Berhad.

Comparison of Apollo with Hup Seng

Anyway, I will try to make some comparison (although there will be readers who will not agree with me totally) in my personal opinion. There are four areas which I think is fair to be used.

Earning Per Share (EPS)

Apollo earned 40sen for its financial year April 2013 while Hup Seng earned 30sen for its financial year December 2012. If one is to use their latest quarterly eps, then Apollo’s current 1st quarter is 13sen while Hup Seng currently is 22sen, up to its latest 3rd quarter. On an annualised basis, Apollo’s eps would be 50sen plus compared to Hup Seng’s eps of 30sen.

Shall we say round one to Apollo?

Price Earning Ratio (PE)

Hup Seng is trading at around the RM6 level and with eps of 30sen, the PE is a high of 20. On the other hand, Apollo is trading at RM5.50 plus level and with eps of 40sen, the PE is only 14. If one is to use the Apollo’s 1st Qtr eps as a guide, the eps would be a conservative 50sen plus level and that would even lower its PE to only 11!

Round Two to Apollo again!

Cash Per Share

It would be more appropriate to use their latest quarterly results to calculate their current cash holdings and then divided by the number of shares issued.

As at July 31st 2013, being the latest 1st Qtr for financial year ended April 2014, Apollo holds cash of RM72 Million. (Trade and other receivables is RM38 Million while trade and other payables is only RM6.6 Million). Divided by its number of 80,000 shares issued and each Apollo share is backed by a cash per share of RM900.00.

As at September 30th 2013, being the latest 3rd Qtr for financial year ended December 2013, Hup Seng holds cash of RM85 Million. (Trade and other receivables is RM35 Million while trade and other payables is also RM35 Million). Divided by its number of 120,000 shares issued and each Apollo share is backed by a cash per share of RM700.00.

So from the above, while Hup Seng has more cash than Apollo, but it is the individual shareholder of Apollo who will receive more in the event both companies decided to pay out all their cash to shareholders (This is an unlikely event, though).

Can we agree that round three also goes to Apollo?

Dividends

Hup Seng paid a dividend of 30sen for its financial year December 2012. Apollo is paying 25sen dividend for its financial year April 2013. Hup Seng is paying 5sen more than Apollo.

So for dividends, my point goes to the cream cracker

biscuit maker, Hup Seng.

The final score is Apollo 3 Hup Seng 1

Perhaps if there are any readers who may feel it is not fair for me to compare the two companies in these ways, you are invited to email me back with your views and to be shared with other readers as well. I am very sure you guys out there will have your own ways of comparisons. Maybe even better than Kassim. Don’t keep it to yourself. Learn to be generous to share with others. The more we can share, the more we all can learn from each other.

Saying Goodbye to One Good “Seng”

Saying goodbye is sometimes very difficult, especially when our loved ones are going to overseas for a long period of time. But when it comes to investing in stocks, one must also not be too emotionally attached to have any sentimental feelings for a particular stock.

But I know I thing for sure, that is one must be brave enough to take profits at a certain time of their investment especially when the profits to be realised is more than 200%!

The writer said  goodbye to Hup Seng on November 22nd 2013 by selling his 3,000 shares at RM6.11. After deducting all the necessary charges, the net proceeds is RM18,195.52. Minus the original investment cost of RM5,717.71 gives a profit of RM12,477.81 and added in  total dividends of RM2,310.00 received, the total net profit is RM14,787.81. This is a return of over 250% for an investment period of 35 months!

Would you take this kind of profit if you were in my shoes?

The Three Wishes for Uchi

The Three Wishes for Uchi

There are quite a few old folk tales out there that feature "The Three Wishes". One of this is a story about three wishes with really bad consequences. It  is from One Thousand and One Nights (a.k.a. Arabian Nights), a very famous collection of stories from the Middle East and South Asia.

In the story in One Thousand and One Nights, a man is granted three wishes. His wife urges him to wish for a bigger, um, you know (the translation we read rather hysterically calls this bit the male anatomy a "prickle" and a "yard"). It's a disaster and his wife is horrified, so the man wishes it smaller, but then it totally disappears. His final wish is used to put things back the way they were before he ever made a wish. Ha, ha.

Other folk tales feature this basic formula: two foolish wishes are made and the third wish is used to bring things back to the way they were.

So, what has "The Three Wishes" got to do with Penang-based company Uchi Technologies Bhd?

Well, shareholders of Uchi must be wishing too that "The Three Wishes" will come true for this high-dividend paying company.

Uchi Technologies Bhd.

Uchi Technologies Bhd. is one real generous stock that really paid good dividends to its shareholders during the last many years. Although its policy is to pay out at least 70% of its profit after tax, there were usually many years when its dividends was almost 100% or even exceeded more than 100%.

The last three years saw Uchi paying out dividends of 12 sen per share for each financial year. Shareholders who bought the shares especially the last three years must be very happy with the slow and steady share price from RM1.10 plus to its current share price of RM1.40 plus.

The business of Uchi is designing and making electronic control modules for coffee machines and precision weighing machines. Europe is its main focus and its revenue from the European continental is almost 96%.

Now, here are The Three Wishes for Uchi

What will propel Uchi's share price to move higher from its current price? As a shareholder myself, I have only three wishes for Uchi which I believed will be the catalysts.

Wish No. 1

The weakening ringgit vs the strengthening green backs. As Uchi trades 100% of its business in US dollars, a stronger dollar in currency exchange would translate into higher earnings. This is already happening as the ringgit has been on a weakening mode for several months. As the saying says, the stronger US dollar is either a bane or boon to different companies conducting export and import business. (Wish No. 1 is already happening!)

Wish No. 2

An improving economic environment in Europe. According to a  report from The Edge dated October 14th, 2013, encouraging economic data has been emerging from Europe. The retail sales for August were better than expected and the Markit's composite purchasing manager's index rose to a 27-month high in September. If this momentum continues, it could only means that more of Uchi's products would be sold there! The more, the better! (Wish No. 2 looks very encouraging and hopeful!).

Wish No. 3

Pioneer status of Uchi Optoelectronic Sdn Bhd expired on December 31st, 2012. This means profits generated are now subjected to a corporate tax rate of 25%, which bumped up income tax expenditure to RM3.2 million in the second quarter  ended June 30th, 2013 from RM200,000 a year ago.

Uchi is still waiting for a reply  from the authorities for its application submitted in September last year  for pioneer status for its new products. Note that companies with pioneer status enjoy different degrees of tax exemption for a minimum of five years. (Wish No. 3 is still pending from the authorities).

Recently, Public Investment Bank valued Uchi at RM1.34 a share based on a price-earning multiple of 13 times on the group's Financial Year 2014 earning per share. Somehow, the market do seem to agree with this. The price is now at RM1.46 at the time of writing.

Like all beautiful ending in fairy tale's story, the writer is hoping that the three wishes would eventually come true in the end for all Uchi shareholders. And that would mean bumper good dividends again! Watch out for the first two weeks of December 2013, that is the time Uchi will announce its first interim dividend and also normally payable by the end of the same month, i.e. December 2013.

One Good "Seng" continues to do well

One Good 'Seng" of Bursa Malaysia was my first posting featuring low-profile and high-paying dividend stock Hup Seng Industries Berhad on July 21st 2013.

At that time of posting, Hup Seng was trading at around RM4.30. Its share price closed at RM5.20 on November 14th 2013 at the time of writing, giving investor a gain of over 20% from its RM4.30 level (when you included the interim dividend of 15 sen paid on October 24th 2013).

Hup Seng's share price continues to do well. Why? Its recently 3rd Quarterly report showed its total nine months earning per share is 22.83 sen compared to last years' nine months of 20.09 sen, an improvement of 13.6%.

As a debt-free company, its cash and cash equivalents is RM85.5 million as at its 3rd Quarter 2013.

Investors of Hup Seng would be pleased to know that Hup Seng biscuits are being served to patients of Pantai Hospital Penang during meals. I learned about this only when my spouse was admitted for several days due to suspected of food poisoning recently. Kudos to the management of Pantai Hospital Penang for choosing Hup Seng as its biscuit provider. I do not know if other hospitals of the Pantai group in Malaysia are using Hup Seng too. Imagine if they are also using Hup Seng biscuits, definitely it must be a big regular business for Hup Seng.

The writer himself also a shareholder of the company, is confident that Hup Seng will reward shareholders with at least another final dividend of 15 sen most probably on April 2014. If that is the case, then the total dividend for 2013 will be 30 sen and the current price of Hup Seng at RM5.20 would mean its dividend yield is a commendable 5.7%!

Once again, a big applause to the Pantai Hospital Penang for choosing Hup Seng biscuits. The management definitely knows how to choose tasty and quality biscuits for its loyal patients!